<PAGE>
As filed with the Securities and Exchange Commission on June 29, 1999
Securities Act File No. 333-14527
Investment Company Act File No. 811-07871
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 [X]
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NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
(Exact Name of Registrant as Specified in Charter)
100 Wall Street, New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code
(212) 806-3500
George A. Rio, President
National Investors Cash Management Fund, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
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Copies to:
Counsel for the Registrant:
Margery K. Neale, Esq.
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue, New York, New York 10022
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It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1)
[ ] On (date) pursuant to paragraph (b)
[ X ] On September 1, 1999 pursuant to paragraph (a) (1)
[ ] 75 days after filing pursuant to paragraph (a) (2)
[ ] On (date) pursuant to paragraph (a) (2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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[front cover]
NATIONAL INVESTORS
CASH MANAGEMENT PORTFOLIOS
Three money market portfolios to choose from:
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
MUNICIPAL PORTFOLIO
PROSPECTUS
[September 1, 1999]
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved any Portfolio's shares or determined whether this
prospectus is adequate or complete. Any representation to the contrary is a
criminal offense.
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[inside front cover]
National Investors Cash Management Portfolios
ABOUT THE PORTFOLIOS
Investment Objective
Investment Approach
Risks
Who May Want to Invest
Expenses
HOW TO BUY AND SELL SHARES
How to Buy Shares
How to Sell Shares
How to Exchange Between Portfolios
Telephone Transactions
SHAREHOLDER INFORMATION
Pricing Your Shares
Dividends
Taxes
Statements to Shareholders
Year 2000 Information
PORTFOLIO MANAGEMENT
Investment Manager
Administrator
Distributor
Shareholder Servicing
FINANCIAL HIGHLIGHTS
FOR MORE INFORMATION Back cover
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National Investors Cash Management Portfolios
ABOUT THE PORTFOLIOS
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INVESTMENT OBJECTIVE
Each Portfolio seeks maximum current income to the extent consistent with
liquidity and preservation of capital and a stable price of $1.00 per share.
There is no guarantee that any Portfolio will be able to maintain a stable share
price.
INVESTMENT APPROACH
Each Portfolio is a no-load money market fund. Each Portfolio invests in high
quality money market securities that the investment manager believes present
minimal credit risk.
Generally, money market securities are short-term debt obligations issued by
banks, corporations or governments. Money market securities may be backed by
loans, receivables or other assets or may be unsecured, and may include
repurchase agreements. In a repurchase agreement, a Portfolio acquires ownership
of a security from a financial institution that agrees to repurchase the
security later at a time and price that determine the yield during the
Portfolio's holding period. Particular types of money market securities are
described in the Portfolios' Statement of Additional Information.
The MONEY MARKET PORTFOLIO has the flexibility to invest in a broad range of
high quality money market securities. The U.S. GOVERNMENT PORTFOLIO offers an
added measure of safety by investing exclusively in obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities. The
MUNICIPAL PORTFOLIO offers income exempt from federal taxes by investing
primarily in municipal securities.
As money market funds, the Portfolios comply with a range of federal regulations
relating to quality, maturity, liquidity and diversification that are designed
to promote price stability. Under the maturity standards, each Portfolio
maintains an average portfolio maturity of 90 days or less (weighted by the
relative values of its holdings), and generally does not invest in any
securities with a remaining maturity of more than 397 days (approximately 13
months). Under the quality standards, each Portfolio invests only in securities
that at the time of purchase are in the two highest short-term rating categories
or are of equivalent quality in the judgment of the investment manager.
Each Portfolio may invest in other investment companies consistent with its
investment objective and approach. Any such investments, although not currently
anticipated, will be made solely in no-load money market funds.
MONEY MARKET PORTFOLIO. The Money Market Portfolio invests in a broad
spectrum of high quality U.S. dollar-denominated money market instruments.
The Portfolio's investments may include obligations issued by, or
guaranteed by, U.S. or foreign governments, their agencies or
instrumentalities, bank obligations, and corporate debt obligations of U.S.
and foreign issuers, as well as repurchase agreements and asset-backed
securities and other money market instruments.
U.S. GOVERNMENT PORTFOLIO. The U.S. Government Portfolio invests
exclusively in U.S. Treasury bills, notes, bonds and other obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities,
and repurchase agreements backed by such obligations. A U.S. government
guarantee of the securities owned by the Portfolio, however, does not guarantee
the net asset value of the Portfolio's shares.
MUNICIPAL PORTFOLIO. The Municipal Portfolio seeks maximum current income that
is exempt from federal income taxes to the extent consistent with preservation
of capital and liquidity. The Portfolio invests primarily in a
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diversified portfolio of short-term, high quality, tax-exempt municipal
obligations. The Municipal Portfolio normally invests at least 80% of its total
assets in obligations issued or guaranteed by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities ("municipal securities").
The income from these securities is exempt from federal income tax, but may be
subject to the federal alternative minimum tax.
The Portfolio may deviate from its investment policies and may adopt temporary
defensive measures when significant adverse market, economic, political or other
circumstances require immediate action in order to avoid losses. During such
periods, the Portfolio may temporarily invest its assets, without limitation, in
taxable money market investments. Interest income from temporary investments is
taxable to shareholders as ordinary income.
Moreover, although the Portfolio does not currently intend to do so on a regular
basis, it may invest more than 25% of its assets in municipal securities that
are repayable out of revenue streams generated from economically related
projects or facilities. Investment in municipal securities repayable from
related revenue streams further concentrates the Portfolio's risks.
RISKS
The income from each Portfolio will vary with changes in prevailing interest
rates. In addition, each Portfolio's investments are subject to "credit risk,"
which is the risk that an issuer will be unable, or will be perceived to be
unable, to repay its obligations at maturity. Funds that invest primarily in
high quality securities are subject to less credit risk than funds that invest
in lower quality securities. The U.S. Government Portfolio reduces credit risk
by investing exclusively in U.S. government and agency securities.
Although each Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in a Portfolio. An
investment in a Portfolio is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Who May Want to Invest
The Portfolios may be appropriate for the following investors:
o Investors looking to earn income at current money market
rates from a high quality portfolio.
o Investors looking for a liquid investment that preserves capital.
o Investors pursuing a short-term investment goal.
In addition, the Municipal Portfolio may be appropriate for investors looking
for income that is exempt from federal income tax.
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EXPENSES
As a shareholder, you may pay certain fees and expenses in connection with the
Portfolios, which are described in the table below. Portfolio operating expenses
are paid out of Portfolio assets, so their effect is included in the share
price.
<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION FEES (fees paid directly
from your investment)(1)
Maximum Sales Charge (Load) Imposed on Purchases None None None
ANNUAL OPERATING EXPENSES (expenses deducted from
Portfolio assets)
Management Fees(2) 0.35% 0.35% 0.35%
Distribution Fees None None None
Other Expenses (including shareholder servicing
fees of 0.25% and other expenses)(2) 0.78% 0.77% 1.25%
----- ----- -----
Total Annual Operating Expenses(2) 1.13% 1.12% 1.60%
</TABLE>
1 Broker-dealers that are not affiliates of the Portfolios' investment
manager may impose service fees in connection with the sale of Portfolio shares,
no part of which may be received by the Portfolio, the investment manager or
affiliates of the investment manager. These fees may differ according to the
type of account held by the investor.
2 Expenses are based on amounts incurred by the Portfolios during their most
recent fiscal year but do not reflect expense reductions or reimbursements and
fee waivers by the investment manager. Through expense reductions, the
investment manager has agreed to limit each Portfolio's total operating expenses
through September 1, 2000 so as not to exceed 0.75% for the Money Market
Portfolio and the U.S. Government Portfolio and 0.74% for the Municipal
Portfolio. Thereafter, any expense reductions will be voluntary and may be
changed or eliminated at any time without notifying investors. After expense
reductions, actual Portfolio expenses for the fiscal year ended April 30, 1999
were:
<TABLE>
<CAPTION>
MONEY MARKET U.S. GOVERNMENT MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
Management Fees 0.35% 0.35% 0.25%
Other Expenses 0.40% 0.40% 0.49%
----- ----- -----
Total Operating Expenses 0.75% 0.75% 0.74%
</TABLE>
The amounts in this footnote reflect current expenses. However, the investment
manager currently anticipates that it will limit overall expense ratios to no
more than the amounts indicated in this footnote indefinitely.
EXAMPLE
This Example is intended to help you compare the cost of investing in a
Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Portfolio for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Portfolio's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs* would be:
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<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio $115 $359 $622 $1,375
U.S. Government Portfolio $114 $356 $617 $1,363
Municipal Portfolio $163 $505 $871 $1,900
</TABLE>
* Assuming current expense reduction arrangements, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio $77 $240 $417 $930
U.S. Government Portfolio $77 $240 $417 $930
Municipal Portfolio $76 $237 $411 $918
</TABLE>
The amounts in this footnote reflect current expenses as set forth in footnote 2
above. The investment manager currently anticipates that it will limit overall
expense ratios to no more than the amounts indicated in footnote 2 above.
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HOW TO BUY AND SELL SHARES
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Only investors maintaining brokerage, securities, money management or similar
accounts with certain broker-dealers, including former customers of Jack White
& Co. now customers of TD Waterhouse Group, Inc. ("TD Waterhouse"), are eligible
to purchase shares of the Portfolios.
If you would like to purchase shares of a Portfolio through TD Waterhouse and
you are not already a customer, you need to open a TD Waterhouse brokerage
account by completing and signing a new account application. To request an
application, please call your TD Waterhouse representative. Mail it, together
with your check in the amount you wish to purchase, in the postage-paid envelope
provided with the new account application.
AUTOMATIC SWEEP. By setting up your TD Waterhouse brokerage account for
automatic sweep, free credit balances in your brokerage account will be invested
or "swept" automatically each business day into the Portfolio you have selected
("Sweep Portfolio"). This feature keeps your money working for you while it is
not invested in other securities. "Free credit balances" refers to any settled
or cleared funds in your TD Waterhouse brokerage account that are available for
payment or investment.
To set up your TD Waterhouse brokerage account for automatic sweep, you should
select one of the money market sweep portfolios in the appropriate section of
the new account application. If you already have a TD Waterhouse brokerage
account but it is not set up to sweep free credit balances automatically, simply
call the TD Waterhouse representative handling your account. In most cases, a TD
Waterhouse representative will set up your account for automatic sweep while you
are on the phone.
While you may purchase shares of any of the Portfolios at any time, only one
Portfolio may be designated as your Sweep Portfolio. The sweep feature is
subject to the terms and conditions of your TD Waterhouse brokerage account
agreement.
ACCOUNT PROTECTION. Within your TD Waterhouse brokerage account, you have access
to other investments available at TD Waterhouse such as stocks, bonds, options,
and other mutual funds. The securities in your TD Waterhouse brokerage account,
including shares of the Portfolio, are protected up to $150 million for loss of
securities (not including loss due to market fluctuations of securities or
economic conditions). The first $500,000 is provided by Securities Investor
Protection Corporation (known as "SIPC") of which $100,000 covers cash. The
remaining $149.5 million, which covers securities only, is provided by a private
insurance carrier.
INVESTMENT MINIMUMS. There is currently no minimum requirement for initial and
subsequent purchases of Portfolio shares. However, Portfolio shares are subject
to automatic redemption if the TD Waterhouse brokerage account in which they are
held is closed or if TD Waterhouse imposes certain requirements with respect to
its brokerage accounts and eligibility for sweep arrangements, including
requirements relating to minimum account balances. Any minimum balance
requirement will not apply to TD Waterhouse IRA accounts.
Shares are purchased at the next net asset value (NAV) per share calculated
after an order and payment is received by the Portfolio. There is no sales
charge to buy shares of a Portfolio.
Each Portfolio reserves the right to suspend the offering of shares for a period
of time and to reject any specific purchase order, including certain purchase
orders by exchange.
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ULTIMATE MARKET ACCOUNT. For those TD Waterhouse customers who qualify, an
Ultimate Market Account provides additional services over that of a brokerage
account. In addition to having free credit balances in your brokerage account
swept automatically each business day into your Sweep Portfolio, you can access
your investment in the Portfolio by writing checks or using an ATM/Mastercard
Debit Card. You should contact your TD Waterhouse representative for more
details. To set up your Ultimate Market Account, you should request the
appropriate application from your TD Waterhouse representative.
HOW TO BUY SHARES
You may purchase shares of a Portfolio either through the automatic sweep
feature or by way of a direct purchase as set forth below.
BY AUTOMATIC SWEEP. Free credit balances in your TD Waterhouse brokerage account
will be automatically invested each business day in the Sweep Portfolio you have
selected. Checks deposited to your TD Waterhouse brokerage account will be
automatically invested in the Sweep Portfolio after allowing three business days
for clearance. Net proceeds from securities transactions in your brokerage
account will be automatically invested upon settlement date. Dividends and
interest payments from investments in your brokerage account will be
automatically invested in the Sweep Portfolio on the day they are credited to
your account.
DIRECT PURCHASES. A TD Waterhouse brokerage customer may purchase shares of any
of the Portfolios by placing an order directly with a TD Waterhouse
representative. You may buy shares by mailing or bringing your check to your TD
Waterhouse office. Checks should be made payable to "National Investor Services
Corp." and you should write your TD Waterhouse account number on the check. The
check will be deposited to your TD Waterhouse brokerage account. TD Waterhouse
allows three business days for clearance and shares of a Portfolio will be
purchased on the third business day.
HOW TO SELL SHARES
To sell (redeem) shares of a Portfolio, you may use any of the methods outlined
above under "How to Buy Shares." Portfolio shares are redeemed at the next NAV
calculated after receipt by the Portfolio of a redemption request in proper
form.
PAYMENT. The proceeds of the redemption of your Portfolio shares ordinarily will
be credited to your brokerage account the following business day after receipt
by the Portfolio of a redemption request in proper form, but not later than
seven calendar days after an order to sell shares is received. If you purchased
shares by check, proceeds may be held in your brokerage account to allow for
clearance of the check (which may take up to ten calendar days). Each Portfolio
reserves the right to make redemption payments in whole or in part in securities
or other property, valued for this purpose as they are valued in computing the
Portfolio's NAV per share.
AUTOMATIC SWEEP REDEMPTIONS. Shares of your Sweep Portfolio may be sold
automatically to satisfy a debit balance in your TD Waterhouse brokerage
account. To the extent that you do not have a sufficient number of shares of
your Sweep Portfolio to satisfy any such debit, shares that you own of other
investment portfolios of National Investors Cash Management Portfolios may be
sold. In addition, shares will be sold to settle securities transactions in your
TD Waterhouse brokerage account if on the day before settlement there is
insufficient cash in the account to settle the net transactions. Your brokerage
account, as of the close of business each business day, will be scanned for
debits and pending securities settlements, and after application of any free
credit balance in the account to the debits, a sufficient number of shares will
be sold the following business day to satisfy any remaining debits. Shares may
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also be sold automatically to provide the cash collateral necessary to meet your
margin obligations to TD Waterhouse.
If you have an Ultimate Market Account and you withdraw cash from your TD
Waterhouse brokerage account by way of a check or ATM/Mastercard Debit Card,
shares of your Sweep Portfolio will automatically be sold to satisfy any
resulting debit balance. Holders of the ATM/Mastercard Debit Card will not be
liable for unauthorized withdrawals resulting in redemptions of Portfolio shares
that occur after TD Waterhouse is notified of the loss, theft or unauthorized
use of the Card. Further information regarding the rights of holders of the
ATM/Mastercard Debit Card is set forth in the Ultimate Market Agreement provided
to each customer who opens an Ultimate Market Account. ATM cash withdrawals may
be made through participating financial institutions. Although TD Waterhouse
does not charge for ATM withdrawals, institutions may charge a fee in connection
with their services.
HOW TO EXCHANGE BETWEEN PORTFOLIOS
You may change your designated Sweep Portfolio to any other Portfolio at any
time without charge. You may also exchange shares of one Portfolio for shares of
another Portfolio. To effect an exchange, call your TD Waterhouse representative
with instructions to move your money from one Portfolio to another, or you may
mail written instructions to your local TD Waterhouse office. Your letter should
reference your TD Waterhouse brokerage account number, the Portfolio from which
you are exchanging and the Portfolio into which you are exchanging. At least one
registered account holder should sign this letter.
An exchange involves the redemption of Portfolio shares and the purchase of
shares of another Portfolio at their respective NAVs after receipt of an
exchange request in proper form. The Portfolio reserves the right to reject
specific exchange orders and, on 60 days' prior written notice, to suspend,
modify or terminate exchange privileges.
TELEPHONE TRANSACTIONS
As a customer of TD Waterhouse you automatically have the privilege of
purchasing, exchanging or redeeming Portfolio shares by telephone. TD Waterhouse
and the Portfolios will employ reasonable procedures to verify the genuineness
of telephone redemption requests. These procedures involve requiring certain
personal identification information. If such procedures are not followed, TD
Waterhouse and the Portfolios may be liable for any losses due to unauthorized
or fraudulent instructions. Neither TD Waterhouse nor the Portfolios will be
liable for following instructions communicated by telephone that are reasonably
believed to be genuine. You should verify the accuracy of your account
statements immediately after you receive them and contact your TD Waterhouse
Account Officer if you question any activity in the account.
Each Portfolio reserves the right to refuse to honor requests made by telephone
if the Portfolio believes them not to be genuine. The Portfolio also may limit
the amount involved or the number of such requests. During periods of drastic
economic or market change, telephone redemption privileges may be difficult to
implement. The Portfolios reserve the right to terminate or modify this
privilege at any time.
SHAREHOLDER INFORMATION
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PRICING YOUR SHARES
The price of a Portfolio share on any given day is its NAV. Each Portfolio
calculates its NAV per share each day as of 12:00 noon and 4:00 p.m. (Eastern
time). Shares are not priced on days when either the New York Stock Exchange or
the Portfolios' custodian is closed. Each Portfolio's shares are sold at the
next NAV per share
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calculated after an order and payment are accepted by the Portfolio in the
manner described under "How to Buy and Sell Shares."
Like most money market funds, each Portfolio values its portfolio securities at
amortized cost, which means that they are valued at their acquisition cost (as
adjusted for amortization of premium or discount) rather than at current market
value. This method of valuation minimizes the effect of changes in a security's
market value and helps each Portfolio to maintain a stable $1.00 share price.
The Board of Directors has adopted procedures pursuant to which the NAV of each
Portfolio, as determined under the amortized cost method, is monitored in
relation to the market value of the Portfolios.
DIVIDENDS
On each day that the NAV of a Portfolio is determined, such Portfolio's net
investment income will be declared at 4:00 p.m. (Eastern time) as a daily
dividend to shareholders of record as of such day's last calculation of NAV. All
expenses are accrued daily and are deducted before declaration of dividends to
investors.
Dividends and distributions from a Portfolio are reinvested in additional full
and fractional shares of the same Portfolio at the NAV next determined after
their payable date. Dividends are declared daily and are reinvested monthly.
Shareholders may elect to receive any monthly dividend in cash by submitting a
written election to TD Waterhouse by the tenth day of the specific month to
which the election to receive cash relates.
TAXES
Dividends derived from interest and short-term capital gains generally are
taxable to a shareholder as ordinary income even though they are reinvested in
additional Portfolio shares. Distributions of net capital gain, if any, realized
by a Portfolio are taxable to shareholders of a Portfolio as a long-term capital
gain (taxable, in the case of individuals, at the maximum rate of 20%),
regardless of the length of time the shareholder may have held shares in the
Portfolio at the time of distribution. Due to the nature of their investments,
the Portfolios' distributions will consist primarily of ordinary income.
All or some of the dividends received from the U.S. Government Portfolio may be
exempt from individual state and/or local income taxes. You should consult with
your tax adviser in this regard.
Required tax information will be provided annually. You are encouraged to retain
copies of your account statements or year-end statements for tax reporting
purposes. However, if you have incomplete records, you may obtain historical
account transaction information at a reasonable fee.
You should consult your tax adviser regarding specific questions as to federal,
state and local taxes.
MUNICIPAL PORTFOLIO. The Municipal Portfolio intends to declare and distribute
tax-exempt interest dividends. Shareholders of the Portfolio will not be
required to include the "exempt-interest" portion of dividends paid by the
Portfolio in their gross income for federal income tax purposes. However,
shareholders will be required to report the receipt of exempt-interest dividends
and other tax-exempt interest on their federal income tax returns.
Exempt-interest dividends may be subject to state income taxes or give rise to a
federal alternative minimum tax liability. Exempt-interest dividends also may
affect the amount of social security benefits subject to federal income tax, may
affect the deductibility of interest on certain indebtedness of the shareholder
and may have other collateral federal income tax consequences.
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Dividends representing taxable net investment income (such as net interest
income from temporary investments in obligations of the U.S. government, and any
net short-term capital gains), are taxable to shareholders as ordinary income.
Market discount recognized on taxable and tax-exempt securities is also taxable
as ordinary income and is not treated as excludable income.
To the extent that exempt-interest dividends are derived from certain private
activity bonds (some of which were formerly referred to as industrial
development bonds) issued on or after August 7, 1986, they will be treated as an
item of tax preference and may, therefore, be subject to both the individual and
corporate alternative minimum tax. All exempt-interest dividends will be
included in determining a corporate shareholder's adjusted current earnings.
Seventy-five percent of the excess, if any, of "adjusted current earnings" over
the corporate shareholder's alternative minimum taxable income, with certain
adjustments, will be an upward adjustment for purposes of the corporate
alternative minimum tax. The percentage of dividends which constitutes
exempt-interest dividends, and the percentage thereof (if any) which constitutes
an item of tax preference, will be determined annually and will be applied
uniformly to all dividends of the Portfolio declared during that year. These
percentages may differ from the actual percentages for any particular day.
Shareholders are advised to consult their tax advisers with respect to
alternative minimum tax consequences of an investment in the Portfolio.
The tax exemption of dividends from the Portfolio for federal income tax
purposes does not necessarily result in exemption under the income or other tax
laws of any state or local taxing authority. The laws of the several states and
local taxing authorities vary with respect to the taxation of such income and
you are advised to consult your own tax adviser as to the status of your
dividends under state and local tax laws.
STATEMENTS TO SHAREHOLDERS
The Portfolios do not issue share certificates but record your holdings in
noncertificated form. Your Portfolio activity is reflected in your TD Waterhouse
brokerage account statement. The Portfolios provide you with annual audited and
semi-annual unaudited financial statements. To reduce expenses, only one copy of
most financial reports is mailed to you if you hold shares of more than one
Portfolio under the same account name and tax identification number.
YEAR 2000 INFORMATION
Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, each Portfolio could be adversely affected
if the computer systems used by the investment manager or other Portfolio
service providers do not properly address this problem prior to January 1, 2000.
The investment manager and its affiliates have established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the investment manager does not anticipate
that the transition into the Year 2000 will have any material impact on its
ability to continue to service the Portfolios at current levels. In addition,
the investment manager has sought assurances from the Portfolios' other service
providers that they are taking all necessary steps to ensure that their computer
systems will accurately reflect the Year 2000, and the investment manager will
continue to monitor the situation. At this time, however, no assurance can be
given that the Portfolios or their service providers have anticipated every step
necessary to avoid any adverse effect on the Portfolios attributable to the Year
2000 Problem
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or that interaction with other non-complying computer systems will not impact
their services. In addition, the Portfolios may be subject to similar risks with
respect to the issuers of securities in which they invest.
PORTFOLIO MANAGEMENT
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INVESTMENT MANAGER
TD Waterhouse Asset Management, Inc., 100 Wall Street, New York, NY 10005, is
the Portfolios' investment manager. The investment manager formulates guidelines
and lists of approved investments for each Portfolio, makes decisions and places
orders for that Portfolio's purchases and sales of portfolio securities and
maintains records relating to such purchases and sales.
For its services, each Portfolio pays the investment manager an annual
investment management fee, accrued daily and payable monthly, on a graduated
basis equal to 0.35% of the first $1 billion of average daily net assets of each
Portfolio, 0.34% of the next $1 billion, and 0.33% of assets over $2 billion.
The investment manager has agreed to waive a portion of its fee payable by the
Municipal Portfolio through September 1, 2000, so that the actual fee payable
annually by the Portfolio during the period will be equal to 0.25% of its
average daily net assets. In addition, the investment manager has agreed to
assume certain Portfolio expenses (or waive its fees) through September 1, 2000,
so that each Portfolio's total operating expenses during the period (expressed
as a percentage of average daily net assets) will not exceed 0.75% for the Money
Market Portfolio, 0.75% for the U.S. Government Portfolio, and 0.74% for the
Municipal Portfolio. The investment manager from time to time may assume certain
expenses of the Portfolios (or waive its fees), which would have the effect of
increasing yield to investors during the period of the expense reduction. Except
as indicated otherwise, these expense reductions are voluntary and may be
changed or eliminated at any time without further notice to investors.
In addition to the Portfolios, the investment manager currently serves as
investment manager to Waterhouse National Bank [(of which it is a subsidiary)]
and to other mutual funds, and as of [ ], had total assets under management in
excess of $[ ] billion.
ADMINISTRATOR
Waterhouse Securities, an affiliate of the investment manager, provides certain
administrative services to the Portfolios. For its services as administrator,
Waterhouse Securities receives from each Portfolio an annual fee, payable
monthly, of 0.10% of the Portfolio's average daily net assets. Waterhouse
Securities has entered into an agreement with Funds Distributor, Inc. ("FDI")
whereby FDI performs certain administrative services for the Portfolios.
Waterhouse Securities pays FDI's fees for providing these services.
DISTRIBUTOR
FDI acts as distributor of the Portfolios' shares for no compensation.
SHAREHOLDER SERVICING
The Portfolios' Shareholder Servicing Plan permits each Portfolio to pay banks,
broker-dealers or other financial institutions (including Waterhouse Securities
and its affiliates) for shareholder support services they provide, at a rate of
up to 0.25% of the average daily net assets of each Portfolio. These services
may include, among other services, providing general shareholder liaison
services (including responding to shareholder inquiries), providing information
on shareholder investments, and establishing and maintaining shareholder
accounts and records.
-12-
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each
Portfolio's financial performance since inception of the Portfolio's operations.
Certain information reflects financial results for a single share of each
Portfolio. The total return amount in the table represents the rate that an
investor would have earned on an investment in a Portfolio (assuming
reinvestment of all dividends and distributions). This information has been
audited by Ernst & Young LLP, whose report, along with the Portfolios' financial
statements, are included in the annual report, which is available upon request
by calling TD Waterhouse at 1-800-233-3411.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO U.S. GOVERNMENT PORTFOLIO MUNICIPAL PORTFOLIO
---------------------- ------------------------- -------------------
Period Ended Period Ended Period Ended
April 30, 1999* April 30, 1999* April 30, 1999*
--------------- --------------- ---------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period $1.000 $1.000 $1.000
------ ------ ------
Net investment income 0.049 0.014 0.010
----- ----- -----
Distributions from net
investment income (0.049) (0.014) (0.010)
------- ------- -------
Net asset value, end of period $1.000 $1.000 $1.000
====== ====== ======
Ratios
Ratio of expenses to average net assets** 0.75% (A) 0.75% (A) 0.74% (A)
Ratio of net investment income
to average net assets** 4.26% (A) 4.10% (A) 2.31% (A)
Decrease reflected in above net expense ratio due to
waivers and/or reimbursements by the Investment
Manager and its Affiliates 0.38% (A) 0.37% (A) 0.86% (A)
Supplemental Data
Total investment
return (B) 5.23% (A) 1.47% (A) 1.07% (A)
Net assets, end of period $720,961,485 $640,012,038 $40,665,010
============ ============ ===========
</TABLE>
* Each Portfolio commenced operations on May 20, 1998.
** The average net assets for the period ended April 30, 1999, were
$128,275,220 for the Money Market Portfolio; $117,827,697 for the U.S.
Government Portfolio; and $7,448,507 for the Municipal Portfolio.
(A) Annualized.
(B) Total investment return is calculated assuming a purchase of shares on
the first day and a sale on the last day of the period reported and
includes reinvestment of dividends.
-13-
<PAGE>
[back cover]
NATIONAL INVESTORS CASH MANAGEMENT PORTFOLIOS
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
More information on the Portfolios is available upon request, including the
following:
SHAREHOLDER REPORTS. Additional information about the Portfolios' investments
is available in the Portfolios' annual and semi-annual reports to shareholders.
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI includes more information
about each Portfolio and its policies. The SAI is on file with the Securities
and Exchange Commission (SEC) and is incorporated by reference into (is legally
considered a part of) this prospectus.
You may request free copies of these materials, along with other information
about the Portfolios, and make shareholder inquiries by contacting:
National Investors Cash Management Portfolios
100 Wall Street
New York, New York 10005
Telephone: 1-800-233-3411
Hearing impaired: TTY 1-800-[ ]
Email: http://www.waterhouse.com
Text-only versions of the Portfolios' prospectus and other documents pertaining
to the Portfolios can be viewed online or downloaded from the SEC
(http://www.sec.gov).
You also can review each Portfolio's reports and SAI at the SEC's public
reference room in Washington, DC. For a fee, you may obtain this information by
writing the SEC's Public Reference Section, Washington, DC 20549-6009. For more
information about these services, call 1-800-SEC-0330.
The Portfolios are series of National Investors Cash Management Fund, Inc.,
whose investment company registration number is [smaller font:] 811-7871.
-14-
<PAGE>
NATIONAL INVESTORS
CASH MANAGEMENT PORTFOLIOS
Three money market portfolios to choose from:
MONEY MARKET PORTFOLIO
U.S. GOVERNMENT PORTFOLIO
MUNICIPAL PORTFOLIO
PROSPECTUS
[September 1, 1999]
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<PAGE>
NATIONAL INVESTORS
CASH MANAGEMENT PORTFOLIOS
100 Wall Street
New York, New York 10005
1-800-233-3411
STATEMENT OF ADDITIONAL INFORMATION
[September 1, 1999]
This Statement of Additional Information (the "SAI") is not a prospectus. It
should be read in conjunction with the prospectus dated [September 1, 1999] (the
"Prospectus") for the Money Market Portfolio, the U.S. Government Portfolio and
the Municipal Portfolio, each a series of National Investors Cash Management
Fund, Inc. (the "Company"). The Prospectus is incorporated by reference into
this Statement of Additional Information.
Each Portfolio's financial statements and financial highlights for the fiscal
period ended April 30, 1999, including the independent auditors' report thereon,
are included in the Portfolio's Annual Report and are incorporated herein by
reference.
To obtain a free copy of the Prospectus or Annual Report, please write to
National Investors Cash Management Portfolios at 100 Wall Street New York, New
York 10005 or call 1-800-233-3411.
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION ABOUT THE COMPANY.....................................
INVESTMENT POLICIES AND RESTRICTIONS......................................
PORTFOLIO TRANSACTIONS ...................................................
DIRECTORS AND EXECUTIVE OFFICERS .........................................
INVESTMENT MANAGEMENT, DISTRIBUTION
AND OTHER SERVICES .......................................................
DIVIDENDS AND TAXES ......................................................
SHARE PRICE CALCULATION ..................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ...........................
PERFORMANCE ..............................................................
SHAREHOLDER INFORMATION ..................................................
ANNEX - RATINGS OF INVESTMENTS ...........................................
<PAGE>
NATIONAL INVESTORS
CASH MANAGEMENT PORTFOLIOS
- -------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE COMPANY
The Company is registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), as an open-end management investment company.
The Company was organized under Maryland law on August 19, 1996. Because the
Company offers multiple portfolios (including the Portfolios), it is known as a
"series company." The Company currently has three investment portfolios with
separate investment objectives and policies. Effective September 1, 1999, the
Portfolios were renamed from their former names the Jack White Money Market
Portfolio, the Jack White U.S. Government Portfolio and the Jack White Municipal
Portfolio.
Each Portfolio is "diversified" as that term is defined in the Investment
Company Act. The investment manager of the Portfolios is Waterhouse Asset
Management, Inc. (the "Investment Manager").
INVESTMENT POLICIES AND RESTRICTIONS
Each Portfolio's investment objective, and its investment policies and
restrictions that are designated as fundamental, may not be changed without
approval by holders of a "majority of the outstanding voting securities" of the
Portfolio. Except as otherwise indicated, however, each Portfolio's investment
policies are not fundamental and may be changed without shareholder approval. As
defined in the Investment Company Act, and as used herein, the term "majority of
the outstanding voting securities" of the Company, or of a particular Portfolio
means, respectively, the vote of the holders of the lesser of (i) 67% of the
shares of the Company or such Portfolio present or represented by proxy at a
meeting where more than 50% of the outstanding shares of the Company or such
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding shares of the Company or such Portfolio.
The following policies and restrictions supplement those set forth in the
Prospectus. Each Portfolio's investments must be consistent with its investment
objective and policies. Accordingly, not all of the security types and
investment techniques discussed below are eligible investments for each of the
Portfolios.
Unless otherwise noted, whenever an investment policy or limitation states a
maximum percentage of a Portfolio's assets that may be invested in any security
or other assets, or sets forth a policy regarding quality standards, such
standard or percentage limitation will be determined immediately after and as a
result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Portfolio's investment policies and restrictions.
<PAGE>
As money market funds, the Portfolios rely on Rule 2a-7 under the Investment
Company Act, as amended ("Rule 2a-7"), in their pursuit of a stable net asset
value. Rule 2a-7 imposes certain quality, maturity, liquidity and
diversification standards on the operation of the Portfolios. See "Rule 2a-7
Matters" below.
ASSET-BACKED SECURITIES
Each Portfolio, other than the Municipal Portfolio, may invest in securities
backed by pools of mortgages, loans, receivables or other assets. Payment of
principal and interest may be largely dependent upon the cash flows generated by
the assets backing the securities, and, in certain cases, supported by letters
of credit, surety bonds, or other credit enhancements. The value of asset-backed
securities may also be affected by the creditworthiness of the servicing agent
for the pool, the originator of the loans or receivables, or the financial
institution(s) providing the credit support. The U.S. Government Portfolio will
invest in asset-backed securities only to the extent that such securities are
considered government securities as described below.
BANK OBLIGATIONS
Investments may be made in U.S. dollar-denominated time deposits, certificates
of deposit, and bankers' acceptances of U.S. banks and their branches located
outside of the United States, U.S. savings and loan institutions, U.S. branches
of foreign banks, and foreign branches of foreign banks.
Time deposits are non-negotiable deposits with a banking institution that earn a
specified interest rate over a given period. A certificate of deposit is an
interest-bearing negotiable certificate issued by a bank against funds deposited
in the bank. A bankers' acceptance is a short-term draft drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction. Although the borrower is liable for payment of the draft, the bank
unconditionally guarantees to pay the draft at its face value on the maturity
date. Certificates of deposit and fixed time deposits, which are payable at the
stated maturity date and bear a fixed rate of interest, generally may be
withdrawn on demand by a Portfolio but may be subject to early withdrawal
penalties which vary depending upon market conditions and the remaining maturity
of the obligation and could reduce the Portfolio's yield. Although fixed-time
deposits do not in all cases have a secondary market, there are no contractual
restrictions on the Portfolio's right to transfer a beneficial interest in the
deposits to third parties. Deposits subject to early withdrawal penalties or
that mature in more than seven days are treated as illiquid securities if there
is no readily available market for the securities. A Portfolio's investments in
the obligations of foreign banks and their branches, agencies or subsidiaries
may be obligations of the parent, of the issuing branch, agency or subsidiary,
or both.
Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation, as well as by governmental action in the country in which the
foreign bank has its head office. Investments in
-3-
<PAGE>
foreign bank obligations are limited to banks and branches located in countries
that the Investment Manager believes do not present undue risk.
Investment in foreign bank obligations are subject to the additional risks
associated with foreign securities.
BORROWING
The Portfolios may borrow from banks and engage in reverse repurchase
agreements. As a matter of fundamental policy, each Portfolio will limit
borrowings (including any reverse repurchase agreements) to amounts not in
excess of 33 1/3% of the value of the Portfolio's total assets less liabilities
(other than borrowings). Any borrowings that exceed this amount will be reduced
within three days (not including Sundays and holidays) to the extent necessary
to comply with the 33 1/3% limitation. As a non-fundamental policy, the
Portfolio will borrow money only as a temporary measure for defensive or
emergency purposes, in order to meet redemption requests without immediately
selling any portfolio securities. No Portfolio will borrow from banks for
leverage purposes. As a matter of fundamental policy, a Portfolio will not
purchase any security, other than a security with a maturity of one day, while
reverse repurchase agreements or borrowings representing more than 5% of its
total assets are outstanding.
CERTIFICATES OF PARTICIPATION
The Municipal Portfolio may invest in certificates of participation.
Certificates of participation may be variable rate or fixed rate with remaining
maturities of one year or less. A certificate of participation may be backed by
an irrevocable letter of credit or guarantee of a financial institution that
satisfies rating agencies as to the credit quality of the municipal security
supporting the payment of principal and interest on the certificate of
participation. Payments of principal and interest would be dependent upon the
underlying municipal security and may be guaranteed under a letter of credit to
the extent of such credit. The quality rating by a rating service of an issuer
of certificates of participation is based primarily upon the rating of the
municipal security held by the trust and the credit rating of the issuer of any
letter of credit and of any other guarantor providing credit support to the
issue. The Investment Manager considers these factors as well as others, such as
any quality ratings issued by the rating services identified above, in reviewing
the credit risk presented by a certificate of participation and in determining
whether the certificate of participation is appropriate for investment by the
Portfolio. It is anticipated by the Investment Manager that for most publicly
offered certificates of participation, there will be a liquid secondary market
or there may be demand features enabling the Portfolio to readily sell its
certificates of participation prior to maturity to the issuer or third party. As
to those instruments with demand features, the Portfolio intends to exercise its
right to demand payment from the issuer of the demand feature only upon a
default under the terms of the municipal security, as needed to provide
liquidity to meet redemptions, or to maintain a high quality investment
portfolio.
-4-
<PAGE>
COMMERCIAL PAPER AND SIMILAR SECURITIES
Corporate debt securities include corporate bonds and notes and short-term
investments such as commercial paper and variable rate demand notes. Commercial
paper (short-term promissory notes) is issued by companies to finance their or
their affiliates' current obligations and is frequently unsecured. Issues of
commercial paper normally have maturities of less than nine months and fixed
rates of return.
Variable rate demand notes are unsecured notes that permit the indebtedness
thereunder to vary and provide for periodic adjustments in the interest rate
according to the terms of the instrument. Variable rate demand notes are
redeemable upon not more than 30 days' notice. These obligations include master
demand notes that permit investment of fluctuating amounts at varying rates of
interest pursuant to direct arrangement with the issuer of the instrument. The
issuer of these obligations often has the right, after a given period, to prepay
the outstanding principal amount of the obligations upon a specified number of
days' notice. Since these notes are direct lending arrangements between a
Portfolio and the issuer, they are not normally traded. Although there is no
secondary market in the notes, the Portfolio may demand payment of principal and
accrued interest at any time. Variable rate demand notes must satisfy the same
criteria as set forth above for commercial paper.
Loan participation interests represent interests in senior, unsecured, working
capital loans, which rank on the same priority and security level as commercial
paper. They are generally issued by corporate entities that require some
short-term funding but lack the large borrowing need or legal status required to
establish a commercial paper program. These interests are actively marketed to
money market funds and other short-term investors by a number of dealers. These
selling banks are also the originators of the underlying bank loans. The selling
banks reserve the right to allow any secondary marketing or repurchases of loan
parts.
Loan participation interests are sold on a non-recourse basis; in the event of
default of the borrower, an investor would have no direct claim on the borrower,
but rather, would look to the selling bank to proceed against the borrower. In
fact, investors must rely on the selling bank to remit all principal and
interest from loan participation interests on a regular basis.
A Portfolio will invest only in commercial paper rated in one of the two highest
rating categories by a nationally recognized statistical rating organization
("NRSRO"), or commercial paper or notes of issuers with a debt issue (which is
comparable in priority and security with the commercial paper or notes) rated in
one of the two highest rating categories for short-term debt obligations by an
NRSRO, or unrated commercial paper or notes of comparable quality as determined
by the Investment Manager, or commercial paper secured by a letter of credit
issued by a domestic or foreign bank rated in the highest rating category by an
NRSRO. For a description of ratings issued by Moody's Investors Service and
Standard & Poor's, two NRSROs, see "Annex - Ratings of Investments."
-5-
<PAGE>
CREDIT ENHANCEMENT FEATURES
Each Portfolio may invest in securities subject to letters of credit or other
credit enhancement features. Such letters of credit or other credit enhancement
features are not subject to federal deposit insurance, and changes in the credit
quality of the issuers of such letters of credit or other credit enhancement
features could cause losses to a Portfolio and affect its share price.
FOREIGN SECURITIES
Investments may be made in bank obligations of the foreign branches of U.S.
banks, and their non-U.S. branches (Eurodollars), U.S. branches of foreign banks
(Yankee dollars), and foreign branches of foreign banks. Investments also may be
made in U.S. dollar-denominated securities issued or guaranteed by foreign
issuers, including U.S. and foreign corporations or other business
organizations, foreign governments, foreign government agencies or
instrumentalities, and foreign financial institutions.
The obligations of foreign branches of U.S. banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by governmental regulation. Payment of
interest and principal on these obligations may also be affected by governmental
action in the country of domicile of the branch (generally referred to as
sovereign risk). In addition, evidence of ownership of portfolio securities may
be held outside of the United States and the Company may be subject to the risks
associated with the holding of such property overseas. Various provisions of
federal law governing the establishment and operation of U.S. branches do not
apply to foreign branches of U.S. banks.
Obligations of foreign issuers involve certain additional risks. These risks may
include future unfavorable political and economic developments, withholding
taxes, increased taxation, seizures of foreign deposits, currency controls,
interest limitations, or other governmental restrictions that might affect
payment of principal or interest. Additionally, there may be less public
information available about foreign banks and their branches. Foreign issuers
may be subject to less governmental regulation and supervision than U.S.
issuers. Foreign issuers also generally are not bound by uniform accounting,
auditing, and financial reporting requirements comparable to those applicable to
U.S. issuers.
FUNDING AGREEMENTS
Funding agreements are insurance contracts between an investor and an insurance
company. For the issuer (insurance company) they represent senior obligations
under an insurance product. For the investor, and from an Internal Revenue
Service and Securities Exchange Commission perspective, these agreements are
treated as securities. These agreements, like other insurance products, are
backed by claims on the general account of the issuing entity and rank on the
same priority level as other policy holder claims.
Funding agreements are typically issued with a one year final maturity and a
variable interest rate, which may adjust weekly, monthly, or quarterly. Some
agreements carry a
-6-
<PAGE>
seven-day put feature. A funding agreement without this feature is considered
illiquid by the Portfolio.
These agreements are regulated by the state insurance board in the state where
they are executed.
GOVERNMENT SECURITIES
Each Portfolio may invest in government securities. The term "government
securities" for this purpose includes marketable securities and instruments
issued or guaranteed by the U.S. government or by its agencies or
instrumentalities, and repurchase agreements with respect to such obligations.
Direct obligations are issued by the U.S. Treasury and include bills,
certificates of indebtedness, notes and bonds. Obligations of U.S. government
agencies and instrumentalities ("Agencies") are issued by government-sponsored
agencies and enterprises acting under authority of Congress. Although
obligations of federal agencies and instrumentalities are not debts of the U.S.
Treasury, in some cases payment of interest and principal on such obligations is
guaranteed by the U.S. government, including, but not limited to, obligations of
the Federal Housing Administration, the Export-Import Bank of the United States,
the Small Business Administration, the Government National Mortgage Association,
the General Services Administration and the Maritime Administration. In other
cases, payment of interest and principal is not guaranteed, e.g., obligations of
the Student Loan Marketing Association, Federal National Mortgage Association,
Federal Home Loan Mortgage Corporation, Tennessee Valley Authority, Federal Home
Loan Bank, and the Federal Farm Credit Bank. There is no guarantee that the U.S.
government will support securities not backed by its full faith and credit.
Accordingly, although these securities historically have involved little risk of
loss of principal if held to maturity, they may involve more risk than
securities backed by the U.S. government's full faith and credit.
ILLIQUID SECURITIES
Each Portfolio may invest up to 10% of its net assets in illiquid securities.
The term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Portfolio has valued the securities. In
determining the liquidity of a Portfolio's investments, the Investment Manager
may consider various factors, including (i) the frequency of trades and
quotations, (ii) the number of dealers and prospective purchasers in the
marketplace, (iii) dealer undertakings to make a market, (iv) the nature of the
security (including any demand or tender features), and (v) the nature of the
marketplace for trades (including the ability to assign or offset the
Portfolio's rights and obligations relating to the investment).
Investments currently considered by the Portfolios to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days upon notice. Also, with regard to the Money Market
Portfolio, the Investment Manager may determine some time deposits to be
illiquid. In the absence of market quotations, illiquid investments are valued
for purposes of monitoring amortized cost valuation at fair value as determined
in good faith by or under the direction of the Board
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<PAGE>
of Directors. If through a change in values, net assets, or other circumstances,
a Portfolio were in a position where more than 10% of its net assets was
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.
For purposes of the 10% limit on illiquid securities, Rule 144A securities will
not be considered to be illiquid so long as the Investment Manager determines,
in accordance with procedures adopted by the Board of Directors, that such
securities have a readily available market. The Investment Manager will monitor
the liquidity of such securities subject to the supervision of the Board of
Directors.
Municipal lease obligations will not be considered illiquid for purposes of the
Municipal Portfolio's 10% limitation on illiquid securities, provided the
Investment Manager determines that there is a readily available market for such
securities. With respect to municipal lease obligations, the Investment Manager
will consider, pursuant to procedures adopted by the Board of Directors, the
following: (1) the willingness of the municipality to continue, annually or
biannually, to appropriate funds for payment of the lease; (2) the general
credit quality of the municipality and the essentiality to the municipality of
the property covered by the lease; (3) in the case of unrated municipal lease
obligations, an analysis of factors similar to that performed by nationally
recognized statistical rating organizations in evaluating the credit quality of
a municipal lease obligation, including (i) whether the lease can be cancelled;
(ii) if applicable, what assurance there is that the assets represented by the
lease can be sold; (iii) the strength of the lessee's general credit (e.g., its
debt, administrative, economic and financial characteristics); (iv) the
likelihood that the municipality will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to the
operations of the municipality (e.g., the potential for an event of
nonappropriation); (v) the legal recourse in the event of failure to
appropriate; and (4) any other factors unique to municipal lease obligations as
determined by the Investment Manager.
INVESTMENT COMPANY SECURITIES
A Portfolio may invest in securities issued by other investment companies to the
extent that such investments are consistent with the Portfolio's investment
objectives and policies and are permissible under the Investment Company Act.
Under the Investment Company Act, each Portfolio may not acquire more than 3% of
the outstanding securities of any one investment company. In addition, each
Portfolio will limit its investments in other investment companies in accordance
with the diversification and quality requirements of such Portfolio. As a
shareholder of another investment company, a Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Portfolio bears directly in connection with
its own operations. Such investments will be made solely in other no-load money
market funds.
MUNICIPAL SECURITIES
Municipal securities include, without limitation, debt obligations issued to
obtain funds for various public purposes, including the construction of a wide
range of public
-8-
<PAGE>
facilities such as airports, bridges, highways, housing, hospitals, mass
transportation, public utilities, schools, streets, and water and sewer works.
Other public purposes for which municipal securities may be issued include
refunding outstanding obligations, obtaining funds for general operating
expenses and obtaining funds to loan to other public institutions and
facilities. In addition, municipal securities include securities issued by or on
behalf of public authorities to finance various privately operated facilities,
such as industrial development bonds or other private activity bonds that are
backed only by the assets and revenues of the non-governmental user (such as
manufacturing enterprises, hospitals, colleges or other entities).
Municipal securities include municipal bonds, notes and leases. Municipal
securities may be zero-coupon securities. Yields on municipal securities are
dependent on a variety of factors, including the general conditions of the
municipal security markets and the fixed income markets in general, the size of
a particular offering, the maturity of the obligation and the rating of the
issue. Municipal securities historically have not been subject to registration
with the Securities and Exchange Commission ("SEC"), although there have been
proposals that would require registration in the future.
Municipal securities may include other securities similar to those described
below that are or may become available.
MUNICIPAL BONDS. Municipal bonds can be classified as either "general
obligation" or "revenue" bonds. General obligation bonds are secured
by a municipality's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue bonds are usually
payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special
excise or other tax, but not from general tax revenues. Municipal
bonds include industrial development bonds. Municipal bonds may also
be "moral obligation" bonds, which are normally issued by special
purpose public authorities. If the issuer is unable to meet its
obligations under the bonds from current revenues, it may draw on a
reserve fund that is backed by the moral commitment (but not the
legal obligation) of the state or municipality that created the
issuer.
Municipal bonds include tax-exempt industrial development bonds, which in most
cases are revenue bonds and generally do not have the pledge of the credit of
the municipality. The payment of the principal and interest on these bonds is
dependent solely on the ability of an initial or subsequent user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. Such obligations, which may include lease arrangements, are included
within the term "municipal securities" if the interest paid thereon qualifies as
exempt from federal income tax (other than the Alternative Minimum Tax (AMT)).
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. General obligation
bonds are used to fund a wide range of public projects, including construction
or improvement of
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<PAGE>
schools, highways and roads, and water and sewer systems. The taxes that can be
levied for the payment of debt service may be limited or unlimited as to rate or
amount. Revenue bonds in recent years have come to include an increasingly wide
variety of types of municipal obligations. As with other kinds of municipal
obligations, the issuers of revenue bonds may consist of virtually any form of
state or local governmental entity. Generally, revenue bonds are secured by the
revenues or net revenues derived from a particular facility, class of
facilities, or, in some cases, from the proceeds of a special excise or other
specific revenue source, but not from general tax revenues. Revenue bonds are
issued to finance a wide variety of capital projects including electric, gas,
water and sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. Many of these bonds are
additionally secured by a debt service reserve fund which can be used to make a
limited number of principal and interest payments should the pledged revenues be
insufficient. Various forms of credit enhancement, such as a bank letter of
credit or municipal bond insurance, may also be employed in revenue bond issues.
Revenue bonds issued by housing authorities may be secured in a number of ways,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund. In recent years, revenue bonds have been issued in large volumes for
projects that are privately owned and operated, as discussed below.
Municipal bonds are considered private activity bonds if they are issued to
raise money for privately owned or operated facilities used for such purposes as
production or manufacturing, housing, health care and other nonprofit or
charitable purposes. These bonds are also used to finance public facilities such
as airports, mass transit systems and ports. The payment of the principal and
interest on such bonds is dependent solely on the ability of the facility's
owner or user to meet its financial obligations and the pledge, if any, of real
and personal property as security for such payment.
The types of projects for which private activity bonds may bear tax-exempt
interest under the Internal Revenue Code of 1986, as amended (the "Code") have
become increasingly limited, particularly since the enactment of the Tax Reform
Act of 1986, and continue to be subject to various restrictions as to authorized
costs, size limitations, state per capita volume restrictions, and other
matters. Under current provisions of the Code, tax-exempt financing remains
available, under prescribed conditions, for certain privately owned and operated
facilities of organizations described in Section 501(c)(3) of the Code,
multi-family rental housing facilities, airports, docks and wharves, mass
commuting facilities and solid waste disposal projects, among others, and for
the tax-exempt refinancing of various kinds of other private commercial projects
originally financed with tax-exempt bonds. In future years, the types of
projects qualifying under the Code for tax-exempt financing could become
increasingly limited.
MUNICIPAL NOTES. Municipal notes, which may be either "general obligation" or
"revenue" securities, are intended to fulfill the short-term capital needs of
the issuer and generally have maturities not exceeding one year. Examples of
municipal notes are
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short-term tax anticipation notes, bond anticipation notes, revenue anticipation
notes, construction loan notes, pre-refunded municipal bonds and tax-free
commercial paper. Tax anticipation notes typically are sold to finance working
capital needs of municipalities in anticipation of receiving property taxes on a
future date. Bond anticipation notes are sold on an interim basis in
anticipation of a municipality issuing a longer term bond in the future. Revenue
anticipation notes are issued in expectation of receipt of other types of
revenue such as those available under the Federal Revenue Sharing Program.
Construction loan notes are instruments insured by the Federal Housing
Administration with permanent financing by "Fannie Mae" (the Federal National
Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association) at the end of the project construction period. Pre-refunded
municipal bonds are bonds which are not yet refundable, but for which securities
have been placed in escrow to refund an original municipal bond issue when it
becomes refundable. Tax-free commercial paper is an unsecured promissory
obligation issued or guaranteed by a municipal issuer.
MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations, which may take the
form of a lease, an installment purchase, or a conditional sale contract, are
issued by state and local governments and authorities to acquire land and a wide
variety of equipment and facilities.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchases, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses" providing
that the governmental issuer has no obligation to make future payments under the
lease or contract unless money is appropriated for such purposes by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations. The
Portfolio's ability to recover under such a lease in the event of
non-appropriation or default will be limited solely to the repossession of the
leased property in the event foreclosure proves difficult. In addition to the
"non-appropriation" risk, these securities represent a relatively new type of
financing that has not yet developed the depth of marketability associated with
more conventional bonds.
Investment in municipal lease obligations is generally made indirectly (i.e.,
not as a lessor of the property) through a participation interest in such
obligations owned by a bank or other third party. A participation interest gives
the investor a specified, undivided interest in the obligation in proportion to
its purchased interest in the total amount of the obligation.
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MUNICIPAL PORTFOLIO. The Municipal Portfolio anticipates being as fully invested
as practicable in municipal securities; however, there may be occasions when, as
a result of maturities of portfolio securities, sales of Portfolio shares, or in
order to meet redemption requests, the Portfolio may hold cash that is not
earning income. In addition, there may be occasions when, in order to raise cash
to meet redemptions, the Portfolio may be required to sell securities at a loss.
From time to time, the Portfolio may invest a portion of its assets on a
temporary basis in fixed-income obligations whose interest is subject to federal
income tax. For example, the Portfolio may invest in obligations whose interest
is federally taxable pending the investment or reinvestment in municipal
securities of proceeds from the sale of its shares or sales of portfolio
securities. Should the Portfolio invest in federally taxable obligations, it
would purchase securities that in the Investment Manager's judgment are of high
quality. These would include obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities; obligations of domestic banks;
and repurchase agreements. In addition, the Portfolio may deviate from its
investment policies and may adopt temporary defensive measures when significant
adverse market, economic, political or other circumstances require immediate
action in order to avoid losses. During such periods, the Portfolio may
temporarily invest its assets, without limitation, in taxable temporary
investments. The Portfolio will purchase taxable obligations only if they meet
its quality requirements.
ADDITIONAL RISK CONSIDERATIONS. The federal bankruptcy statutes relating to the
adjustments of debts of political subdivisions and authorities of states of the
United States provide that, in certain circumstances, such subdivisions or
authorities may be authorized to initiate bankruptcy proceedings without prior
notice to or consent of creditors, which proceedings could result in material
adverse changes in the rights of holders of obligations issued by such
subdivisions or authorities.
Litigation challenging the validity under the state constitutions of present
systems of financing public education has been initiated or adjudicated in a
number of states, and legislation has been introduced to effect changes in
public school finances in some states. In other instances there has been
litigation challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or federal law which ultimately could
affect the validity of those municipal securities or the tax-free nature of the
interest thereon.
Proposals to restrict or eliminate the federal income tax exemption for interest
on municipal obligations are introduced before Congress from time to time.
Proposals also may be introduced before state legislatures that would affect the
state tax treatment of the Portfolio's distributions. If such proposals were
enacted, the availability of municipal obligations and the value of the
Municipal Portfolio's holdings would be affected and the directors would
reevaluate the Portfolio's investment objective and policies.
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PUT FEATURES
Put features entitle the holder to sell a security (including a repurchase
agreement) back to the issuer or a third party at any time or at specific
intervals. They are subject to the risk that the put provider is unable to honor
the put feature (purchase the security). Put providers often support their
ability to buy securities on demand by obtaining letters of credit or other
guarantees from domestic or foreign banks. The Investment Manager may rely on
its evaluation of a bank's credit in determining whether to purchase a security
supported by a letter of credit. In evaluating a foreign bank's credit, the
Investment Manager will consider whether adequate public information about the
bank is available and whether the bank may be subject to unfavorable political
or economic developments, currency controls, or other government restrictions
that might affect the bank's ability to honor its credit commitment. Demand
features, standby commitments, and tender options are types of put features.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements, which are instruments under
which a Portfolio acquires ownership of a security from a broker-dealer or bank
that agrees to repurchase the security at a mutually agreed upon time and price
(which price is higher than the purchase price), thereby determining the yield
during the Portfolio's holding period. Repurchase agreements are, in effect,
loans collateralized by the underlying securities. Maturity of the securities
subject to repurchase may exceed one year. It is each Portfolio's current policy
to engage in repurchase agreement transactions with parties whose
creditworthiness has been reviewed and found satisfactory by the Investment
Manager pursuant to procedures approved by the Board of Directors, however, it
does not presently appear possible to eliminate all risks from these
transactions. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, a Portfolio might have expenses in enforcing its rights,
and could experience losses, including a decline in the value of the underlying
security and loss of income.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are transactions in which a Portfolio sells a
security and simultaneously commits to repurchase that security from the buyer
at an agreed-upon price on an agreed-upon future date. The resale price in a
reverse repurchase agreement reflects a market rate of interest that is not
related to the coupon rate or maturity of the sold security. For certain demand
agreements, there is no agreed-upon repurchase date and interest payments are
calculated daily, often based upon the prevailing overnight repurchase rate.
Generally, a reverse repurchase agreement enables a Portfolio to recover for the
term of the reverse repurchase agreement all or most of the cash invested in the
portfolio securities sold and to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Portfolio of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise. In addition, interest costs on the money
received in a reverse repurchase agreement may exceed the return received on the
investments made by the Portfolio with those monies.
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The use of reverse repurchase agreement proceeds to make investments may be
considered to be a speculative technique.
While a reverse repurchase agreement is outstanding, a Portfolio will segregate
appropriate liquid assets to cover its obligation under the agreement. Each
Portfolio will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by the Investment Manager.
RULE 144A SECURITIES
If otherwise consistent with its investment objectives and policies, each
Portfolio, other than the Government Portfolio, may invest in Rule 144A
securities. Rule 144A securities are securities that are not registered under
the Securities Act of 1933 but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A under the Securities Act of 1933. Any such
security will not be considered illiquid so long as it is determined by the
Company's Board of Directors or the Investment Manager, acting under guidelines
approved and monitored by the Company's Board, that an adequate trading market
exists for that security. This investment practice could have the effect of
increasing the level of illiquidity in a Portfolio during any period that
qualified institutional buyers become uninterested in purchasing these
restricted securities.
RULE 2A-7 MATTERS
Each Portfolio must comply with the requirements of Rule 2a-7. Under the
applicable quality requirements of Rule 2a-7, the Portfolios may purchase only
U.S. dollar-denominated instruments that are determined to present minimal
credit risks and that are at the time of acquisition "eligible securities" as
defined in Rule 2a-7. Generally, eligible securities are divided into "first
tier" and "second tier" securities. First tier securities are generally those in
the highest rating category (e.g., A-1 by Standard & Poor's) or unrated
securities deemed to be comparable in quality, government securities and
securities issued by other money market funds. Second tier securities are
generally those in the second highest rating category (e.g., A-2 by Standard &
Poor's) or unrated securities deemed to be comparable in quality. See "Annex -
Ratings of Investments."
Except to the limited extent permitted by Rule 2a-7 and except for government
securities, no Portfolio may invest more than 5% (at the time of purchase) of
its total assets in the securities of any one issuer. The Money Market Portfolio
may not invest more than 5% (at the time of purchase) of its total assets in
second tier securities. In addition, the Money Market Portfolio may not invest
more than 1% of its total assets or $1 million (whichever is greater) in the
second tier securities of a single issuer. The Municipal Portfolio's investment
in second tier "conduit securities" (as defined in Rule 2a-7) is limited to 5%
of the Portfolio's total assets and, with respect to second tier conduit
securities issued by a single issuer, the greater of $1 million or 1% of the
Portfolio's total assets. Generally, conduit securities are securities issued to
finance non-governmental private projects, such as retirement homes, private
hospitals, local housing projects, and industrial development projects, with
respect to which the ultimate obligor is not a government entity.
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Each Portfolio will maintain a dollar-weighted average maturity of 90 days or
less and will limit its investments to securities that have remaining maturities
of 397 calendar days or less or other features that shorten maturities in a
manner consistent with the requirements of Rule 2a-7, such as interest rate
reset and demand features.
SECTION 4(2) PAPER
The Money Market Portfolio may invest in Section 4(2) paper. Section 4(2) paper
is restricted as to disposition under the federal securities laws, and generally
is sold to institutional investors such as the Money Market Portfolio who agree
that they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors like the
Portfolio through or with the assistance of the issuer or investment dealers who
make a market in the Section 4(2) paper, thus providing liquidity. The
Investment Manager considers the legally restricted but readily saleable Section
4(2) paper to be liquid. However, pursuant to procedures adopted by the
Company's Board of Directors, if an investment in Section 4(2) paper is not
determined by the Investment Manager to be liquid, that investment will be
included within the 10% limitation on illiquid securities. The Investment
Manager will monitor the liquidity of the Portfolio's investments in Section
4(2) paper on a continuous basis.
SECURITIES LENDING
Each Portfolio may lend portfolio securities in amounts up to 33 1/3% of its
respective total assets to brokers, dealers and other financial institutions,
provided such loans are callable at any time by the Portfolio and are at all
times secured by cash or by equivalent collateral. By lending its portfolio
securities, a Portfolio will receive income while retaining the securities'
potential for capital appreciation. As with any extensions of credit, there are
risks of delay in recovery and, in some cases, even loss of rights in the
collateral should the borrower of the securities fail financially. However, such
loans of securities will only be made to firms deemed to be creditworthy by the
Investment Manager.
STANDBY COMMITMENTS
The Municipal Portfolio may acquire standby commitments. Standby commitments are
put options that entitle holders to same day settlement at an exercise price
equal to the amortized cost of the underlying security plus accrued interest, if
any, at the time of exercise. The Municipal Portfolio may acquire standby
commitments to enhance the liquidity of portfolio securities, but only when the
issuers of the commitments present minimal risk of default. Ordinarily, the
Municipal Portfolio may not transfer a standby commitment to a third party,
although it could sell the underlying municipal security to a third party at any
time. The Portfolio may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In the
latter case, the Portfolio would pay a higher price for the securities acquired,
thus reducing their yield to maturity. Standby commitments will not affect the
dollar-weighted average maturity of the Portfolio, or the valuation of the
securities underlying the commitments. Issuers or financial intermediaries may
obtain letters of credit or
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other guarantees to support their ability to buy securities on demand. The
Investment Manager may rely upon its evaluation of a bank's credit in
determining whether to invest in an instrument supported by a letter of credit.
Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the commitments
are exercised; the fact that standby commitments are not marketable by the
Portfolios; and the possibility that the maturities of the underlying securities
may be different from those of the commitments.
STRIPPED GOVERNMENT SECURITIES
Each of the Portfolios, except the Municipal Portfolio, may purchase U.S.
Treasury STRIPS (Separate Trading of Registered Interest and Principal of
Securities), which are created when the coupon payments and the principal
payment are stripped from an outstanding Treasury bond by the Federal Reserve
Bank. These instruments are issued at a discount to their "face value" and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors. Bonds
issued by the Resolution Funding Corporation (REFCORP) can also be stripped in
this fashion. REFCORP Strips are eligible investments for the Money Market
Portfolio and the U.S. Government Portfolio. The Money Market Portfolio can
purchase privately stripped government securities, which are created when a
dealer deposits a Treasury security or federal agency security with a custodian
for safekeeping and then sells the coupon payments and principal payment that
will be generated by this security. Proprietary receipts, such as Certificates
of Accrual on Treasury Securities (CATS), Treasury Investment Growth Receipts
(TIGRs), and generic Treasury Receipts (TRs), are stripped U.S. Treasury
securities that are separated into their component parts through trusts created
by their broker sponsors. Bonds issued by the Financing Corporation (FICO) can
also be stripped in this fashion. Because of the view of the SEC on privately
stripped government securities, the Money Market Portfolio must evaluate them as
it would non-government securities pursuant to regulatory guidelines applicable
to all money market funds.
TENDER OPTION BONDS
The Municipal Portfolio may purchase tender option bonds. Tender option bonds
are created by coupling an intermediate- or long-term, fixed-rate, tax-exempt
bond (generally held pursuant to a custodial arrangement) with a tender
agreement that gives the holder the option to tender the bond at its face value.
As consideration for providing the tender option, the sponsor (usually a bank,
broker-dealer, or other financial institution) receives periodic fees equal to
the difference between the bond's fixed coupon rate and the rate (determined by
a remarketing or similar agent) that would cause the bond, coupled with the
tender option, to trade at par on the date of such determination. After payment
of the tender option fee, the Portfolio effectively holds a demand obligation
that bears interest at the prevailing short-term tax-exempt rate. Subject to
applicable regulatory requirements, the Municipal Portfolio may buy tender
option bonds if the agreement gives the Portfolio the right to tender the bond
to its sponsor no less frequently than once every 397 days. In selecting tender
option bonds for the Portfolio, the Investment Manager will consider the
creditworthiness of the issuer of the underlying bond, the custodian, and the
third party provider of the tender
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option. In certain instances, a sponsor may terminate a tender option if, for
example, the issuer of the underlying bond defaults on an interest payment.
VARIABLE OR FLOATING RATE OBLIGATIONS
Each Portfolio may invest in variable rate or floating rate obligations.
Floating rate instruments have interest rates that change whenever there is a
change in a designated base rate while variable rate instruments provide for a
specified periodic adjustment in the interest rate. The interest rate of
variable rate obligations ordinarily is determined by reference to or is a
percentage of an objective standard such as a bank's prime rate, the 90-day U.S.
Treasury Bill rate, or the rate of return on commercial paper or bank
certificates of deposit. Generally, the changes in the interest rate on variable
rate obligations reduce the fluctuation in the market value of such securities.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less than for fixed-rate obligations. Each
Portfolio determines the maturity of variable rate obligations and floating rate
obligations in accordance with Rule 2a-7, which allows the Portfolio to consider
certain of such instruments as having maturities shorter than the maturity date
on the face of the instrument.
WHEN-ISSUED AND DELAYED DELIVERY BASIS SECURITIES
Each Portfolio may invest in when-issued and delayed delivery basis securities.
Typically, no interest accrues to the purchaser until the security is delivered.
When purchasing securities on a when-issued or delayed delivery basis, a
Portfolio assumes the rights and risks of ownership, including the risk of price
and yield fluctuations. A security purchased on a when-issued basis is subject
to changes in market value based upon changes in the level of interest rates and
investors' perceptions of the creditworthiness of the issuer. Generally such
securities will appreciate in value when interest rates decline and decrease in
value when interest rates rise. Because a Portfolio is not required to pay for
securities until the delivery date, these risks are in addition to the risks
associated with each Portfolio's other investments. If a Portfolio remains
substantially fully invested at a time when when-issued or delayed delivery
purchases are outstanding, the purchases may result in a form of leverage. At
the time of delivery of the securities, the value may be more or less than the
purchase price and an increase in the percentage of the Portfolio's assets
committed to the purchase of securities on a when-issued or delayed delivery
basis may increase the volatility of the Portfolio's net asset value.
When a Portfolio has sold a security on a delayed delivery basis, the Portfolio
does not participate in further gains or losses with respect to the security. If
the other party to a delayed delivery transaction fails to deliver or pay for
the securities, a Portfolio could miss a favorable price or yield opportunity,
or could suffer a loss. Each Portfolio may renegotiate when-issued or delayed
delivery transactions after they are entered into, and may sell underlying
securities before they are delivered, which may result in capital gains or
losses. The sale of such securities by the Municipal Portfolio may result in the
realization of gains that are not exempt from federal income tax.
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In determining the maturity of portfolio securities purchased on a when-issued
or delayed delivery basis, the Portfolio will consider them to have been
purchased on the date when it committed itself to the purchase. When when-issued
or delayed delivery purchases are outstanding, a Portfolio will segregate
appropriate liquid assets to cover its purchase obligations. A Portfolio will
make commitments to purchase securities on a when-issued or delayed delivery
basis only with the intention of actually acquiring or disposing of the
securities, but the Portfolio reserves the right to sell these securities before
the settlement date if deemed advisable.
ZERO COUPON BONDS
Each Portfolio may invest in zero coupon bonds. Zero coupon bonds do not make
regular interest payments. Instead, they are sold at a discount from their face
value and are redeemed at face value when they mature. Because zero coupon bonds
do not pay current income, their prices can be very volatile when interest rates
change. In calculating its daily dividend, a Portfolio takes into account as
income a portion of the difference between a zero coupon bond's purchase price
and its face value.
--------------------------------
FUTURE DEVELOPMENTS
Each Portfolio may invest in securities and in other instruments that do not
presently exist but may be developed in the future, provided that each such
investment is consistent with such Portfolio's investment objectives, policies
and restrictions and is otherwise legally permissible under federal and state
laws. The Prospectus and/or SAI will be amended or supplemented as appropriate
to discuss any such new investments.
THE FOLLOWING ARE THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF EACH PORTFOLIO OF
THE COMPANY. EACH PORTFOLIO MAY NOT (UNLESS NOTED OTHERWISE):
(1) with respect to 75% of its total assets, purchase the securities of any
issuer (other than securities issued or guaranteed by the U.S. government, or
any of its agencies or instrumentalities) if, as a result thereof, (a) more than
5% of the Portfolio's total assets would be invested in the securities of that
issuer, or (b) the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;
(2) with respect to the Municipal Portfolio, normally invest less than 80% of
its total assets in obligations issued or guaranteed by states, territories and
possessions of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, the income from which is
exempt from federal income tax, but may be subject to federal alternative
minimum tax liability;
(3) issue senior securities, except as permitted under the Investment Company
Act;
(4) make short sales of securities or purchase securities on margin (but a
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities);
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(5) borrow money, except that each Portfolio may: (i) borrow money for temporary
defensive or emergency purposes (not for leveraging or investment), (ii) engage
in reverse repurchase agreements for any purpose, and (iii) pledge its assets in
connection with such borrowing to the extent necessary; provided that (i) and
(ii) in combination do not exceed 33 1/3% of the Portfolio's total assets
(including the amount borrowed) less liabilities (other than borrowings). Any
borrowings that exceed this amount will be reduced within three days (not
including Saturdays, Sundays and holidays) to the extent necessary to comply
with the 33 1/3% limitation. A Portfolio will not purchase any security, other
than a security with a maturity of one day, while reverse repurchase agreements
or borrowings representing more than 5% of its total assets are outstanding;
(6) act as an underwriter (except as it may be deemed such in a sale of
restricted securities);
(7) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities;
or, in the case of the Municipal Portfolio, tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or local government, or
a political subdivision, agency or instrumentality of any of the foregoing) if,
as a result, more than 25% of the Portfolio's total assets would be invested in
the securities of companies whose principal business activities are in the same
industry, except that the Money Market Portfolio may invest more than 25% of its
total assets in the financial services industry and the Municipal Portfolio may
invest more than 25% of its total assets in industrial development bonds related
to a single industry. The Money Market Portfolio specifically reserves the right
to invest up to 100% of its assets in certificates of deposit or bankers'
acceptances issued by U.S. banks including their foreign branches, and U.S.
branches of foreign banks, in accordance with its investment objectives and
policies;
(8) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Portfolio from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);
(9) buy or sell commodities or commodity (futures) contracts, except for
financial futures and options thereon. This limitation does not apply to options
attached to, or acquired or traded together with, their underlying securities,
and does not apply to securities that incorporate features similar to options or
futures contracts;
(10) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be loaned to other parties, but this limit does not
apply to purchases of debt securities or to repurchase agreements; or
(11) purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or to the
extent otherwise permitted by the Investment Company Act; however, a Portfolio
may, notwithstanding
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any other fundamental investment policy or limitation, invest all of its assets
in the securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies, and
restrictions as the Portfolio.
THE FOLLOWING INVESTMENT RESTRICTIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL. EACH PORTFOLIO DOES NOT CURRENTLY INTEND:
(i) to purchase a security (other than a security issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, or a security
subject to an "unconditional demand feature issued by a non-controlled person,"
as defined in Rule 2a-7) if, as a result, more than 5% of its total assets would
be invested in the securities of a single issuer, provided that a Portfolio may
invest up to 25% of its total assets in the first tier securities of a single
issuer for up to three business days;
(ii) to purchase or hold any security if, as a result, more than 10% of its net
assets would be invested in securities that are deemed to be illiquid because
they are subject to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued, including repurchase
agreements not entitling the holder to payment of principal and interest within
seven days upon notice and securities restricted as to disposition under federal
securities laws, except for commercial paper issued in reliance on the "private
placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 ("Section 4(2) paper") and securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933 ("144A securities"),
which are determined to be liquid pursuant to procedures adopted by the
Company's Board of Directors; or
(iii) to invest in financial futures and options thereon.
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to pursue the objective of
each Portfolio in relation to movements in the general level of interest rates,
to invest money obtained from the sale of Portfolio shares, to reinvest proceeds
from maturing portfolio securities and to meet redemptions of Portfolio shares.
This may increase or decrease the yield of a Portfolio depending upon the
Investment Manager's ability to correctly time and execute such transactions.
Each Portfolio normally intends to hold its portfolio securities to maturity.
The Portfolios do not intend to trade portfolio securities although they may do
so to take advantage of short-term market movements.
The Investment Manager places orders for the purchase and sale of assets with
brokers and dealers selected by and in the discretion of the Investment Manager.
In placing orders for the Portfolio's portfolio transactions, the Investment
Manager seeks "best execution" (i.e., prompt and efficient execution at the most
favorable prices). Consistent with the policy of "best execution," orders for
portfolio transactions are placed with broker-dealer firms giving consideration
to the quality, quantity and nature of the firms' professional services which
include execution, clearance procedures,
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reliability and other factors. In selecting among the firms believed to meet the
criteria for handling a particular transaction, the Investment Manager may give
consideration to those firms that provide market, statistical and other research
information to the Company and the Investment Manager, although the Investment
Manager is not authorized to pay higher prices to firms that provide such
services. Any research benefits derived are available for all clients. Because
statistical and other research information is only supplementary to the
Investment Manager's research efforts and still must be analyzed and reviewed by
its staff, the receipt of research information is not expected to significantly
reduce its expenses. In no event will a broker-dealer that is affiliated with
the Investment Manager receive brokerage commissions in recognition of research
services provided to the Investment Manager.
The Investment Manager may employ broker-dealer affiliates of the Investment
Manager (collectively "Affiliated Brokers") to effect portfolio transactions for
the Portfolios, provided certain conditions are satisfied. Payment of brokerage
commissions to Affiliated Brokers is subject to Section 17(e) of the Investment
Company Act and Rule 17e-1 thereunder, which require, among other things, that
commissions for transactions on securities exchanges paid by a registered
investment company to a broker which is an affiliated person of such investment
company, or an affiliated person of another person so affiliated, not exceed the
usual and customary brokers' commissions for such transactions. The Board of
Directors, including a majority of the directors who are not "interested
persons" of the Company within the meaning of such term as defined in the
Investment Company Act ("Disinterested Directors"), has adopted procedures to
ensure that commissions paid to affiliates of the Investment Manager by the Fund
satisfy the standards of Section 17(e) and Rule 17e-1.
The investment decisions for each Portfolio will be reached independently from
those for each other and for other accounts, if any, managed by the Investment
Manager. On occasions when the Investment Manager deems the purchase or sale of
securities to be in the best interest of one or more Portfolios as well as other
clients of the Investment Manager, the Investment Manager, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Investment
Manager in accordance with its policy for aggregation of orders, as in effect
from time to time. In some cases this procedure may affect the size or price of
the position obtainable for a Portfolio.
The Company expects that purchases and sales of portfolio securities usually
will be principal transactions. Purchases and sales of fixed income portfolio
securities are generally effected as principal transactions. These securities
are normally purchased directly from the issuer or from an underwriter or market
maker for the securities. There usually are no brokerage commissions paid for
such purchases. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers serving as market makers include
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the spread between the bid and ask prices. In the case of securities traded in
the over-the-counter markets, there is generally no stated commission, but the
price usually includes an undisclosed commission or markup.
DIRECTORS AND EXECUTIVE OFFICERS
Responsibility for overall management of the Company rests with its Board of
Directors in accordance with Maryland law.
The directors and executive officers of the Company, along with their principal
occupations over the past five years and their affiliations, if any, with the
Investment Manager and Funds Distributor, Inc. ("FDI"), the Company's
distributor, are listed below.
RICHARD W. DALRYMPLE, Director. Mr. Dalrymple has served as a Director of each
of the Company and Waterhouse Investors Family of Funds, Inc. ("WIFF") since
February 26, 1998 and December 12, 1995, respectively. Mr. Dalrymple has been
the President of Teamwork Management, Inc. since January 1997. Mr. Dalrymple has
served as a Director of Dime Bancorp, Inc. since 1990. Mr. Dalrymple has been a
Trustee of The Shannon McCormack Foundation since 1988, the Kevin Scott
Dalrymple Foundation since 1993, a Director of National Center for Disability
Services since 1983, and a Director of Aitken Neuroscience Center since 1998.
From 1990 through 1995, Mr. Dalrymple served as President and Chief Operating
Officer of Anchor Bank. From 1985 through 1990, Mr. Dalrymple worked for the
Bank of Boston. During this time, Mr. Dalrymple served as the President of
Massachusetts Banking and the Southern New England Region, and as Department
Executive of Banking Services. He is 56 years old. Mr. Dalrymple's address is 45
Rockefeller Plaza, New York, NY 10111.
CAROLYN B. LEWIS, Director. Ms. Lewis has served as a Director of each of the
Company and WIFF since February 26, 1998. Since March 1997, Ms. Lewis has
served as President of The CBL Group providing professional services to clients
in the securities and healthcare industries. Ms. Lewis spent over 30 years at
the United States Securities and Exchange Commission (SEC) in various positions
including Senior Financial Analyst, Branch Chief and Assistant Director. In
September 1997, Ms. Lewis was appointed a member of the Board of Governors of
the Philadelphia Stock Exchange. Presently, Ms. Lewis is a member of the Board
of Directors of the Metropolitan Washington Airports Authority and a director on
various healthcare and hospital Boards, including Chairman Elect of the Board of
Trustees of the American Hospital Association. She is 62 years old. Ms. Lewis'
address is 2920 W Street Southeast, Washington, DC 20020.
ANTHONY J. PACE*, Director. Mr. Pace has served as a Director of the Company
since February 26, 1998. Since January 1988, Mr. Pace has served as President
and Chief Executive Officer of A.J. Pace & Co., an investment management firm.
From December 1995 through October 1996, Mr. Pace served as a Director of WIFF.
From
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December 1979 through December 1987, Mr. Pace was an Associate Director of Bear
Stearns & Co. Inc. From 1970 through 1979, Mr. Pace was a Vice President at
First Boston. Mr. Pace is a member of the Board of Directors of the Brooklyn
Conservatory of Music. He is 62 years old. Mr. Pace's address is 981 Madison
Avenue, New York, NY 10021.
JAMES F. RITTINGER*, Director. Mr. Rittinger has served as Director of the
Company since February 26, 1998. Since 1979, Mr. Rittinger has been a Partner
at Satterlee Stephens Burke & Burke LLP, a law firm. From 1987 through 1996,
Mr. Rittinger was a member of the Board of Directors of Waterhouse Investor
Services, Inc., a New York Stock Exchange listed company. From 1983 through
1994, Mr. Rittinger served as Justice of the Village of Briarcliffe Manor, New
York. Mr. Rittinger is a member of the Association of the Bar of the State of
New York. He is 52 years old. Mr. Rittinger's address is 230 Park Avenue, New
York, NY 10169-0079.
THEODORE ROSEN, Director. Mr. Rosen has served as Director of the Company since
February 26, 1998. From December, 1995 through February, 1998, Mr. Rosen served
as a Director of WIFF. Since 1993, Mr. Rosen has been a Managing Director of
Burnham Securities, Inc. and Chairman of the Board of Directors of U.S. Energy
Systems, Inc. Mr. Rosen has held senior management positions in retail sales,
investment management, and corporate finance. From 1991 to 1993, Mr. Rosen was
Senior Vice President at Oppenheimer & Co., and from 1989 to 1991 was a Vice
President-Sales at Smith Barney. Prior to 1989, Mr. Rosen held senior
management positions with other firms including Morgan Stanley & Co., Ladenburg
Thalman, and Burnham & Co. Mr. Rosen was the founder and President of Summit
Capital Group, a money management and investment banking firm. He is 75 years
old. Mr. Rosen's address is 1325 Avenue of the Americas, New York, NY 10019.
GEORGE A. RIO**, President, Treasurer and Chief Financial Officer. Mr. Rio is
Executive Vice President and Director of Client Services of FDI since April
1998. From June 1995 to March 1998, Mr. Rio was Senior Vice President and
Senior Key Account Manager for Putnam Mutual Funds. From May 1994 to June 1995,
Mr. Rio was Director of Business Development for First Data Corporation. From
September 1983 to May 1994, Mr. Rio was Senior Vice President and Manager of
Client Services and Director of Internal Audit at The Boston Company. He is 44
years old.
CHRISTOPHER J. KELLEY**, Vice President and Secretary. Mr. Kelley is Vice
President and Senior Associate General Counsel of FDI, and an officer of certain
investment companies distributed by FDI or its affiliates. From April 1994 to
July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. He is 34
years old.
* THIS DIRECTOR IS AN "INTERESTED PERSON" OF THE COMPANY.
** ADDRESS: 60 STATE STREET, SUITE 1300, BOSTON, MA 02109
On [August 1, 1999], the officers and directors of the Company, as a group,
owned less than 1% of the outstanding shares of each Portfolio.
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Officers and directors who are interested persons of the Investment Manager,
Investment Subadviser or FDI receive no compensation from the Company. Each
director who is not an interested person serving on the board of a company in
the "Fund Complex" (which includes the Company and WIFF, an investment company
also advised by the Investment Manager) receives a (i) complex-wide annual
retainer of $12,000, (ii) a supplemental annual retainer of $5,000 if serving on
the board of more than one company in the Fund Complex, and (iii) a meeting fee
of $2,000 for each meeting attended. Directors who are interested persons of the
Company may be compensated by the Investment Manager or its affiliates for their
services to the Company.
The Company pays its directors an annual retainer and a per meeting fee and
reimburses them for their expenses. The amounts of compensation that the Company
paid to each director for the fiscal year ended April 30, 1999, are as follows:
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits
Compensation Accrued as Part of Total Compensation
Name of Board from Company's from Fund Complex (3)
Member Company (1) Expenses Paid to Board Members
- ------ ------- -------- ---------------------
<S> <C> <C> <C>
Richard W. Dalrymple (1) $11,131 $0 $24,649
Carolyn B. Lewis $11,131 $0 $24,649
Anthony J. Pace (2) $0 $0 $0
James F. Rittinger (2) $0 $0 $0
Theodore Rosen $19,158 $0 $19,158
</TABLE>
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(1) Amounts do not include reimbursed expenses for attending Board meetings
or compensation from the Investment Manager or its affiliates.
(2) Interested director of the Company.
(3) "Fund Complex" includes the Company and WIFF.
INVESTMENT MANAGEMENT, DISTRIBUTION AND OTHER SERVICES
INVESTMENT MANAGEMENT
Waterhouse Asset Management, Inc., a Delaware corporation, is the Investment
Manager of each Portfolio. Pursuant to the Investment Management Agreement with
the Company on behalf of each Portfolio, the Investment Manager manages each
Portfolio's investments in accordance with its stated policies and restrictions,
subject to oversight by the Company's Board of Directors.
The Investment Manager is an indirect majority-owned subsidiary of The
Toronto-Dominion Bank ("TD Bank"). TD Bank, a Canadian chartered bank, is
subject to the provisions of the Bank Act of Canada. The Investment Manager also
currently serves as investment manager to other mutual funds and to Waterhouse
National Bank, an affiliate of the Investment Manager and as of [ ] had total
assets
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under management in excess of $[ ] billion. Personnel of the Investment Manager
may invest in securities for their own account pursuant to a code of ethics that
sets forth all employees' fiduciary responsibilities regarding the Company,
establishes procedures for personal investing and restricts certain
transactions.
The Investment Management Agreement continues in effect for two years from the
date of execution, and thereafter from year to year so long as its continuance
is specifically approved annually by (i) a majority vote of the directors who
are not parties to such agreement or interested persons of any such party except
in their capacity as directors of the Company, cast in person at a meeting
called for such purpose, and (ii) by the vote of a majority of the outstanding
voting securities of each Portfolio, or by the Company's Board of Directors. The
agreement may be terminated as to any Portfolio at any time upon 60 days' prior
written notice, without penalty, by either party, or by a majority vote of the
outstanding shares of a Portfolio with respect to that Portfolio, and will
terminate automatically upon assignment. The Investment Management Agreement was
approved by the Board of Directors of the Company, including a majority of the
Disinterested Directors who have no direct or indirect financial interest in the
Agreement, and by the shareholders of each Portfolio.
The Investment Management Agreement provides that the Investment Manager will
not be liable for any error of judgment or of law, or for any loss suffered by a
Portfolio in connection with the matters to which such agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on the
Investment Manager's part in the performance of its obligations and duties, or
by reason of its reckless disregard of its obligations and duties under such
agreement. The services of the Investment Manager to the Portfolios under the
Investment Management Agreement are not exclusive and it is free to render
similar services to others.
For the investment management services furnished to each Portfolio, such
Portfolio pays the Investment Manager an annual investment management fee,
accrued daily and payable monthly, on a graduated basis equal to 0.35% of the
first $1 billion of average daily net assets of each such Portfolio, 0.34% of
the next $1 billion, and 0.33% of average daily net assets of each Portfolio
over $2 billion. The Investment Manager has agreed to waive a portion of its fee
payable by the Municipal Portfolio through September 1, 2000, so that the actual
fee payable annually by the Portfolio during the period will be equal to 0.25%
of its average daily net assets. In addition, the Investment Manager has agreed
to assume certain Portfolio expenses (or waive its fees) through September 1,
2000, so that each Portfolio's total operating expenses during the period
(expressed as a percentage of average daily net assets) will not exceed 0.75%
for the Money Market Portfolio, 0.75% for the U.S. Government Portfolio, and
0.74% for the Municipal Portfolio.
The Investment Manager and its affiliates may, from time to time, voluntarily
waive or reimburse all or a part of each Portfolio's operating expenses. Expense
reimbursements by the Investment Manager or its affiliates will increase each
Portfolio's total returns and yield.
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<PAGE>
Total investment management fees paid by the Company to the Investment Manager
for the fiscal period ended April 30, 1999 were $425,203, $390,833 and $0
for the Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio, respectively. For this period, the Investment Manager voluntarily
waived $143, $41 and $24,699 of its investment management fee for the Money
Market Portfolio, the U.S. Government Portfolio and the Municipal Portfolio,
respectively. The Investment Manager reimbursed the Municipal Portfolio $3,666
of investment management fees.
ADMINISTRATION
Pursuant to an Administration Agreement with the Company, Waterhouse Securities,
as Administrator, provides administrative services to each of the Portfolios.
Administrative services furnished by Waterhouse Securities include, among
others, maintaining and preserving the records of the Company, including
financial and corporate records, computing net asset value, dividends,
performance data and financial information regarding the Company, preparing
reports, overseeing the preparation and filing with the SEC and state securities
regulators of registration statements, notices, reports and other material
required to be filed under applicable laws, developing and implementing
procedures for monitoring compliance with regulatory requirements, providing
routine accounting services, providing office facilities and clerical support as
well as providing general oversight of other service providers. For its services
as administrator, Waterhouse Securities receives from each Portfolio an annual
fee, payable monthly, of 0.10% of average daily net assets of such Portfolio.
The fee is accrued daily as an expense of each Portfolio.
Total administrative fees paid by the Company to Waterhouse Securities for the
fiscal year ended April 30, 1999 were $62,729 for the Money Market Portfolio,
$74,234 for the U.S. Government Portfolio and $3,583 for the Municipal
Portfolio, respectively. For this period, Waterhouse Securities waived or
reimbursed $58,798, $37,444 and $3,474 of its administration fee for the Money
Market Portfolio, the U.S. Government Portfolio and the Municipal Portfolio,
respectively.
Waterhouse Securities has entered into a Subadministration Agreement with FDI
pursuant to which FDI performs certain of the foregoing administrative services
for the Company. Under this Agreement, Waterhouse Securities pays FDI's fees
for providing such services. In addition, Waterhouse Securities may enter into
subadministration agreements with other persons to perform such services from
time to time.
The Administration Agreement has an initial term of two years and will continue
in effect only if such continuance is specifically approved annually by a vote
of the Board of Directors, including a majority of Disinterested Directors who
have no direct or indirect financial interest in the Agreement. The Agreement
was approved by the Board of Directors of the Company, including a majority of
the Disinterested Directors of the Company who have no direct or indirect
financial interest in the Agreement. Each Portfolio or Waterhouse Securities may
terminate the Administration Agreement on 60 days' prior written notice without
penalty. Termination by a Portfolio may be by vote of the Company's Board of
Directors, or a majority of the Disinterested Directors of the Company who have
no direct or indirect financial interest in the Agreement, or by a
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majority of the outstanding voting securities of such Portfolio. The Agreement
terminates automatically in the event of its "assignment" as defined in the
Investment Company Act.
The Administration Agreement provides that Waterhouse Securities will not be
liable for any error of judgment or of law, or for any loss suffered by a
Portfolio in connection with the matters to which such agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence on
Waterhouse Securities' part in the performance of its obligations and duties, or
by reason of its reckless disregard of its obligations and duties under such
agreement.
The Glass-Steagall Act and other applicable laws generally prohibit federally
chartered or supervised banks from engaging in the business of underwriting,
selling or distributing securities. While the matter is not free from doubt,
Waterhouse Securities and the Investment Manager believe that such laws should
not preclude them from acting as administrator and investment manager,
respectively, to the Company. Accordingly, Waterhouse Securities under the
Administration Agreement and the Investment Manager under the Investment
Management Agreement will only perform administrative and investment management
servicing functions, respectively. However, judicial and administrative
decisions or interpretations of such laws as well as changes in either state
statutes or regulations relating to the permissible activities of banks or their
subsidiaries or affiliates could prevent Waterhouse Securities or the Investment
Manager from continuing to perform all or a part of their administration or
investment management activities, respectively. If Waterhouse Securities or the
Investment Manager were prohibited from so acting, alternative means of
continuing such services would be sought by the Board of Directors of the
Company.
DISTRIBUTION
The distributor of the Company is FDI, 60 State Street, Suite 1300, Boston,
Massachusetts 02109. Pursuant to a Distribution Agreement between the Company
and FDI, FDI has the exclusive right to distribute shares of the Company. FDI
may enter into dealer or agency agreements with affiliates of the Investment
Manager and other firms for the sale of Company shares. FDI has entered into
such an agency agreement with Waterhouse Securities. FDI receives no fee from
the Company under the Distribution Agreement for acting as distributor to the
Company. FDI also acts as a subadministrator for the Company.
The Distribution Agreement has an initial term of two years and will continue in
effect only if such continuance is specifically approved annually by a vote of
the Board of Directors, including a majority of Disinterested Directors who have
no direct or indirect financial interest in the Agreement. The Agreement was
approved by the Board of Directors of the Company, including a majority of
Disinterested Directors who have no direct or indirect financial interest in the
Agreement. Each Portfolio may terminate the Distribution Agreement on 60 days'
prior written notice without penalty. Termination by a Portfolio may be by vote
of a majority of the Company's Board of Directors, or a majority of the
Disinterested Directors, or by a majority of the outstanding voting
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<PAGE>
securities of such Portfolio. The Agreement terminates automatically in the
event of its "assignment" as defined in the Investment Company Act.
SHAREHOLDER SERVICING
The Board of Directors of the Company has approved a Shareholder Servicing Plan
("Servicing Plan") pursuant to which each Portfolio may pay banks,
broker-dealers or other financial institutions that have entered into a
shareholder services agreement with the Company ("Servicing Agents") in
connection with shareholder support services that they provide. Payments under
the Servicing Plan will be calculated daily and paid monthly at an annual rate
that may not exceed 0.25% of the average daily net assets of each Portfolio. The
shareholder services provided by the Servicing Agents pursuant to the Servicing
Plan may include, among other services, providing general shareholder liaison
services (including responding to shareholder inquiries), providing information
on shareholder investments, establishing and maintaining shareholder accounts
and records, and providing such other similar services as may be reasonably
requested.
The Servicing Plan was approved by the Board of Directors, including a majority
of the Disinterested Directors who have no direct or indirect financial interest
in the Plan or the Shareholder Services Agreement. The Servicing Plan continues
in effect as long as such continuance is specifically so approved at least
annually. The Servicing Plan may be terminated by the Company with respect to
any Portfolio by a vote of a majority of the Disinterested Directors who have no
direct or indirect financial interest in the Plan or any agreements relating
thereto.
Pursuant to a Shareholder Services Agreement between the Company and Waterhouse
Securities, Waterhouse Securities has agreed to provide shareholder services to
each Portfolio pursuant to the Shareholder Servicing Plan. The Company may enter
into similar agreements with other service organizations, including
broker-dealers and banks whose clients are shareholders of the Company, to act
as Servicing Agents and to perform shareholder support services with respect to
such clients.
The Shareholder Services Agreement with Waterhouse Securities will continue in
effect only if such continuance is specifically approved at least annually by a
vote of the Board of Directors, including a majority of the Disinterested
Directors who have no direct or indirect financial interest in the Agreement.
The Agreement was approved by the Board of Directors of the Company, including a
majority of the Disinterested Directors who have no direct or indirect financial
interest in the Agreement. Each Portfolio or Waterhouse Securities may terminate
the Shareholder Services Agreement on 60 days' prior written notice without
penalty. Termination by a Portfolio may be by vote of the Company's Board of
Directors, or a majority of the Disinterested Directors who have no direct or
indirect financial interest in the Agreement. The Agreement terminates
automatically in the event of its "assignment" as defined in the Investment
Company Act.
Total shareholder servicing fees paid by the Company to Waterhouse Securities
for the fiscal year ended April 30, 1999 were $17,050 for the Money Market
Portfolio,
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$16,178 for the U.S. Government Portfolio and $4,300 for the Municipal
Portfolio, respectively. For this period, Waterhouse Securities waived or
reimbursed $286,769, $263,018 and $13,343 of its shareholder servicing fees for
the Money Market Portfolio, the U.S. Government Portfolio and the Municipal
Portfolio, respectively.
Conflict of interest restrictions may apply to the receipt by Servicing Agents
of compensation from the Company in connection with the investment of fiduciary
assets in Company shares. Servicing Agents, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers are
urged to consult their legal advisers before investing such assets in Company
shares.
TRANSFER AGENT AND CUSTODIAN
National Investor Services Corp. (also referred to as the "Transfer Agent"), an
affiliate of the Investment Manager, serves as transfer and dividend disbursing
agent for each Portfolio. For the services provided under the Transfer Agency
and Dividend Disbursing Agency Agreement, which include furnishing periodic and
year-end shareholder statements and confirmations of purchases and sales,
reporting share ownership, aggregating, processing and recording purchases and
redemptions of shares, processing dividend and distribution payments, forwarding
shareholder communications such as proxies, shareholder reports, dividend
notices and prospectuses to beneficial owners, receiving, tabulating and
transmitting proxies executed by beneficial owners and sending year-end tax
reporting to shareholders and the Internal Revenue Service, the Transfer Agent
is entitled to an annual fee, payable monthly, of 0.20% of each Portfolio's
average daily net assets.
The Transfer Agent is permitted to subcontract any or all of its functions with
respect to all or any portion of a Portfolio's shareholders to one or more
qualified sub-transfer agents or processing agents, which may be affiliates of
the Transfer Agent, FDI or broker-dealers authorized to sell shares of a
Portfolio pursuant to a selling agreement with FDI. The Transfer Agent is
permitted to compensate those agents for their services; however, that
compensation may not increase the aggregate amount of payments by the Portfolios
to the Transfer Agent.
Pursuant to a Custodian Agreement, The Bank of New York (the "Custodian"), 90
Washington Street, New York, NY 10286, acts as the custodian of each Portfolio's
assets. The Custodian, among other things, maintains a custody account or
accounts in the name of each Portfolio, receives and delivers all assets for the
Portfolio upon purchase and upon sale or maturity, collects all income and other
payments and distributions with respect to the assets of the Portfolio, and pays
expenses of the Portfolio.
OTHER EXPENSES
Each Portfolio pays the expenses of its operations, including the costs of
shareholder and board meetings, the fees and expenses of blue sky and pricing
services, independent auditors, counsel, the Custodian and the Transfer Agent,
reports and notices to shareholders, the costs of calculating net asset value,
brokerage commissions or
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transaction costs, taxes, interest, insurance premiums, Investment Company
Institute dues and the fees and expenses of qualifying the Portfolio and its
shares for distribution under federal and state securities laws. In addition,
each Portfolio pays for typesetting, printing and mailing proxy material,
prospectuses, statements of additional information, notices and reports to
existing shareholders, and the fees of the Disinterested Directors. Each
Portfolio is also liable for such nonrecurring expenses as may arise, including
costs of any litigation to which the Company may be a party, and any obligation
it may have to indemnify the Company's officers and directors with respect to
any litigation. The Company's expenses generally are allocated among its
investment portfolios (such as the Portfolios) on the basis of relative net
assets at the time of allocation, except that expenses directly attributable to
a particular investment portfolio are charged to that portfolio.
DIVIDENDS AND TAXES
DIVIDENDS
On each day that the net asset value ("NAV") of a Portfolio is determined, such
Portfolio's net investment income will be declared at 4:00 p.m. (Eastern time)
as a daily dividend to shareholders of record as of such day's last calculation
of NAV.
Each Portfolio calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of a Portfolio consists of
accrued interest income plus or minus amortized discount or premium minus
accrued expenses. Expenses of each Portfolio are accrued each day.
Because each Portfolio's income is entirely derived from interest or gains from
the sale of debt instruments, dividends from a Portfolio will not qualify for
the dividends received deduction available to corporate shareholders.
Distributions of income realized with respect to market discount will be made,
at least annually, as determined by the Board of Directors, to maintain each
Portfolio's NAV at $1.00 per share.
CAPITAL GAIN DISTRIBUTIONS
If a Portfolio realizes any net capital gain, such gain will be distributed at
least once during the year as determined by the Board of Directors, to maintain
its NAV at $1.00 per share. Short-term capital gain distributions by a Portfolio
are taxable to shareholders as ordinary income, not as capital gain. Any
realized capital loss to the extent not offset by realized capital gain will be
carried forward. It is not anticipated that a Portfolio will realize any capital
gain from the sale of securities held for more than 12 months, but if it does
so, this gain will be distributed annually.
TAX STATUS OF THE COMPANY
The Fund intends to continue to meet the requirements of the Code applicable to
regulated investment companies and to distribute all of its investment company
taxable income and net realized gain, if any, to shareholders. Accordingly, it
is not anticipated
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that any Portfolio will be liable for federal income or excise taxes to which it
would otherwise be subject. Qualification as a regulated investment company does
not, of course, involve governmental supervision of management or investment
practices or policies.
Each Portfolio is treated as a separate entity from the other Portfolios for tax
purposes.
STATE AND LOCAL TAX ISSUES. Shareholders are urged to consult with their tax
advisers as to whether any of the dividends paid by the U.S. Government
Portfolio are exempt from state and local taxation. The exemption from state and
local income taxation does not preclude states from assessing other taxes on the
ownership of U.S. government securities whether such securities are held
directly or through the Company.
FEDERAL INCOME TAX ISSUES - MUNICIPAL PORTFOLIO. Distributions from the
Municipal Portfolio will constitute exempt-interest dividends to the extent of
the Portfolio's tax-exempt interest income (net of expenses and amortized bond
premium). Exempt-interest dividends distributed to shareholders of the Municipal
Portfolio are excluded from gross income for federal income tax purposes.
However, shareholders required to file a federal income tax return will be
required to report the receipt of exempt-interest dividends on their returns.
Moreover, while exempt-interest dividends are excluded from gross income for
federal income tax purposes, they may be subject to alternative minimum tax
("AMT") in certain circumstances and may have other collateral tax consequences
as discussed below. Distributions by the Municipal Portfolio of any investment
company taxable income (which include any short-term capital gains and market
discount) will be taxable to shareholders as ordinary income.
Dividend distributions resulting from a recharacterization of gain from the sale
of bonds purchased with market discount are not considered income for purposes
of the Municipal Portfolio's policy of investing so that at least 80% of its
income is free from federal income tax.
AMT is imposed to the extent it exceeds the regular tax and is computed at a
maximum marginal rate of 28% for noncorporate taxpayers and 20% for corporate
taxpayers on the excess of the taxpayer's alternative minimum taxable income
("AMTI") over an exemption amount. Exempt-interest dividends derived from
certain "private activity" municipal obligations issued after August 7, 1986
will generally constitute an item of tax preference includable in AMTI for both
corporate and noncorporate taxpayers. Corporate investors should note that 75%
of the amount by which adjusted current earnings (which includes all tax-exempt
interest) exceeds the AMTI of the corporation constitutes an upward adjustment
for purposes of the corporate AMT. Shareholders are advised to consult their tax
advisers with respect to alternative minimum tax consequences of an investment
in the Municipal Portfolio.
Exempt-interest dividends must be taken into account in computing the portion,
if any, of social security or railroad retirement benefits that must be included
in an individual shareholder's gross income and subject to federal income tax.
Receipt of exempt-interest dividends may result in other collateral federal
income tax consequences to
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certain taxpayers. Prospective investors should consult their own tax advisers
as to such consequences.
Interest on indebtedness which is incurred to purchase or carry shares of a
mutual fund portfolio which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Further, the Municipal
Portfolio may not be an appropriate investment for (i) persons who are
"substantial users" of facilities financed by industrial development bonds held
by the Municipal Portfolio or are "related persons" to such users; or (ii)
persons who are investing through a tax-exempt retirement plan, IRA or Keogh
Account.
A separate tax is imposed on corporations at a rate of 0.12 percent of the
excess of such corporation's "modified" AMTI over $2,000,000. A portion of
tax-exempt interest, including exempt-interest dividends, may be includable in
modified AMTI.
The Municipal Portfolio purchases municipal obligations based on opinions of
bond counsel regarding the federal income tax status of the obligations. These
opinions generally will be based on covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenant at any time, interest on the
obligation could become federally taxable, either prospectively or retroactively
to the date the obligation was issued.
OTHER TAX INFORMATION
Each of the Portfolios may invest in obligations, such as zero coupon bonds,
issued with original issue discount ("OID") for federal income tax purposes.
Accrued OID constitutes income subject to the distribution requirements
applicable to regulated investment companies, although such income may not be
represented by any cash payment. Accordingly, it may be necessary for a
Portfolio to dispose of other assets in order to satisfy such distribution
requirements.
The Transfer Agent will send each shareholder a notice in January describing the
tax status of dividend and capital gain distributions (where applicable) for the
prior year.
Each Portfolio generally is required by law to withhold 31% ("back-up
withholding") of certain dividends, distributions of capital gains and
redemption proceeds paid to certain shareholders who do not furnish a correct
taxpayer identification number (in the case of individuals, a social security
number and in the case of entities, an employer identification number) and in
certain other circumstances. Any tax withheld as a result of backup withholding
does not constitute an additional tax imposed on the shareholder of the account,
and may be claimed as a credit on such shareholder's federal income tax return.
You should consult your own tax adviser regarding the withholding requirement.
Dividends paid to foreign investors generally will be subject to a 30% (or lower
treaty rate) withholding tax.
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The information above, together with the information set forth in the Prospectus
and this SAI, is only a summary of some of the federal income tax consequences
generally affecting each Portfolio and its shareholders, and no attempt has been
made to present a detailed explanation of the tax treatment of each Portfolio or
to discuss individual tax consequences. In addition to federal income taxes,
shareholders may be subject to state and local taxes on Company distributions
and on redemptions or other dispositions of shares of the Portfolios, and shares
may be subject to state and local personal property taxes. Investors should
consult their tax advisers to determine whether a Portfolio is suitable to their
particular tax situation.
Foreign shareholders should consult their tax advisers regarding foreign tax
consequences applicable to their purchase of Company shares.
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS
The Company's independent auditors, Ernst & Young LLP, 787 Seventh Avenue, New
York, New York 10019, audit and report on the Company's annual financial
statements, review certain regulatory reports and the Company's federal income
tax returns, and perform other professional accounting, auditing, tax and
advisory services when engaged to do so by the Company. Shareholders will
receive annual audited financial statements and semi-annual unaudited financial
statements. The Portfolios' April 30, 1999 financial statements and the report
thereon of Ernst & Young LLP from the Portfolios' April 30, 1999 annual report
(as filed with the SEC on June 28, 1999 pursuant to Section 30(b) of the
Investment Company Act and Rule 30b2-1 thereunder (Accession Number
0000889812-99-001953)) are incorporated herein by reference.
SHARE PRICE CALCULATION
The price of each Portfolio's shares on any given day is its NAV per share. NAV
is calculated by the Company for each Portfolio on each day that the New York
Stock Exchange (the "NYSE") and the Custodian are open. Currently, the NYSE is
closed on weekends and New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. In addition to these holidays, the Custodian
generally is closed on Veteran's Day and Columbus Day.
Each Portfolio values its portfolio instruments at amortized cost, which means
that they are valued at their acquisition cost, as adjusted for amortization of
premium or accretion of discount, rather than at current market value. The
amortized cost value of an instrument may be higher or lower than the price each
Portfolio would receive if it sold the instrument.
Valuing a Portfolio's instruments on the basis of amortized cost and use of the
term "money market fund" are permitted by Rule 2a-7. Each Portfolio must adhere
to certain conditions under Rule 2a-7.
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The Board of Directors of the Company oversees the Investment Manager's
adherence to SEC rules concerning money market funds, and has established
procedures designed to stabilize each Portfolio's NAV per share at $1.00. At
such intervals as they deem appropriate, the Board of Directors considers the
extent to which NAV calculated by using market valuations would deviate from
$1.00 per share. Market valuations are obtained by using actual quotations
provided by market makers, estimates of current market value, or values obtained
from yield data relating to classes of money market instruments published by
reputable sources at the mean between the bid and asked prices of the
instruments. If a deviation were to occur between the NAV per share calculated
by reference to market values and a Portfolio's NAV per share, which the Board
of Directors of the Company believed may result in material dilution or other
unfair results to shareholders, the directors have agreed promptly to consider
what corrective action they deem appropriate to eliminate or reduce, to the
extent reasonably practicable, the dilution or unfair results. Such corrective
action could include selling portfolio securities prior to maturity; withholding
dividends; redeeming shares in kind; establishing NAV by using available market
quotations; and such other measures as the directors may deem appropriate.
During periods of declining interest rates, each Portfolio's yield based on
amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder of any Portfolio would be able to retain a
somewhat higher yield than would result if each Portfolio utilized market
valuations to determine its NAV. The converse would apply in a period of rising
interest rates.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of each Portfolio are sold on a continuous basis by the distributor.
Each Portfolio does not currently impose a minimum for initial or subsequent
investments. However, minimum requirements may be imposed or changed at any
time. Each Portfolio may waive minimum investment requirements for purchases by
directors, officers or employees of the Company, Waterhouse or any of its
subsidiaries.
The Company normally calculates the NAV of each Portfolio as of 12:00 noon and
4:00 p.m. (Eastern time) each day that the NYSE and the Custodian are open. To
the extent that portfolio securities are traded in other markets on days when
the NYSE or the Custodian is closed, a Portfolio's NAV may be affected on days
when investors do not have access to the Company to purchase or redeem shares.
In addition, trading in some of a Portfolio's portfolio securities may not occur
on days when the Company is open for business.
If the Board of Directors determines that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in securities
or other property, valued for this purpose as they are valued in computing a
Portfolio's NAV. Shareholders receiving securities or other property on
redemption may realize a gain or loss for tax purposes, and will incur any costs
of sale, as well as the associated
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inconveniences. An in kind distribution of portfolio securities will be less
liquid than cash. The shareholder may have difficulty in finding a buyer for
portfolio securities received in payment for redeemed shares. Portfolio
securities may decline in value between the time of receipt by the shareholder
and conversion to cash. A redemption in kind of a Portfolio's portfolio
securities could result in a less diversified portfolio of investments for the
Portfolio and could affect adversely the liquidity of the Portfolio's portfolio.
The Company may suspend redemption rights and postpone payments at times when
trading on the NYSE is restricted, the NYSE is closed for any reason other than
its customary weekend or holiday closings, emergency circumstances as determined
by the SEC exist, or for such other circumstances as the SEC may permit.
PERFORMANCE
The historical performance calculation for a Portfolio may be shown in the form
of "yield," "effective yield" and, for the Municipal Portfolio only, "tax
equivalent yield" and "tax equivalent effective yield." These various measures
of performance are described below.
Each Portfolio's yield is computed in accordance with a standardized method
prescribed by rules of the SEC. Under that method, the yield quotation is based
on a seven-day period and is computed for each Portfolio as follows: the first
calculation is net investment income per share for the period, which is accrued
interest on portfolio securities, plus or minus amortized discount or premium
(excluding market discount for the Municipal Portfolio), less accrued expenses.
This number is then divided by the price per share (expected to remain constant
at $1.00) at the beginning of the period ("base period return"). The result is
then divided by 7 and multiplied by 365 and the resulting yield figure is
carried to the nearest one-hundredth of one percent. Realized capital gains or
losses and unrealized appreciation or depreciation of investments are not
included in the calculation.
The yield for each Portfolio for the seven day period ended April 30, 1999 was
4.28% for the Money Market Portfolio, 4.13% for the U.S. Government Portfolio
and 2.77% for the Municipal Portfolio.
Each Portfolio's effective yield is determined by taking the base period return
(computed as described above) and calculating the effect of assumed compounding.
The formula for effective yield is:
[(base period return + 1) 365/7] -1.
The effective yield for each Portfolio for the seven day period ended April 30,
1999 was 4.37% for the Money Market Portfolio, 4.21% for the U.S. Government
Portfolio and 2.81% for the Municipal Portfolio.
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The tax equivalent yield of the shares of the Municipal Portfolio is computed by
dividing that portion of the yield of the Portfolio (computed as described
above) that is tax-exempt by an amount equal to one minus the stated federal
income tax rate (normally assumed to be the maximum applicable marginal tax
bracket rate) and adding the result to that portion, if any, of the yield of the
Portfolio that is not tax-exempt.
The tax equivalent yield for the Municipal Portfolio for the seven day period
ended April 30, 1999 was 4.39%. The assumed federal income tax rate is 36%.
Tax equivalent effective yield is computed in the same manner as tax equivalent
yield, except that effective yield is substituted for yield in the calculation.
Each Portfolio's yield fluctuates, and the publication of an annualized yield
quotation is not a representation as to what an investment in that Portfolio
will actually yield for any given future period. Actual yields will depend not
only on changes in interest rates on money market instruments during the period
in which the investment in the Portfolio is held, but also on such matters as
expenses of that Portfolio.
The performance of the Company's Portfolios may be compared to that of other
money market mutual funds tracked by Lipper Analytical Services, Inc.
("Lipper"), a widely used independent research firm that ranks mutual funds by
overall performance, investment objectives and assets. Lipper performance
calculations include the reinvestment of all capital gain and income dividends
for the periods covered by the calculations. A Portfolio's performance also may
be compared to other money market funds as reported by IBC/Donoghue's Money Fund
Report(R), a reporting service on money market funds. As reported by Money Fund
Report, all investment results represent total return (annualized results for
the period net of management fees and expenses) and one year investment results
are effective annual yields assuming reinvestment of dividends.
BANK RATE MONITOR(TM), N. Palm Beach, Florida 33408, a financial reporting
service which each week publishes average rates of bank and thrift institution
money market deposit accounts and interest bearing checking accounts, reports
results for the BANK RATE MONITOR National Index. The rates published by the
BANK RATE MONITOR National Index are averages of the personal account rates
offered on the Wednesday prior to the date of publication by 100 of the leading
bank and thrift institutions in the ten largest Consolidated Metropolitan
Statistical Areas. Account minimums range upward from $2,000 in each institution
and compounding methods vary. Interest bearing checking accounts generally offer
unlimited checking while money market deposit accounts generally restrict the
number of checks that may be written. If more than one rate is offered, the
lowest rate is used. Rates are determined by the financial institution and are
subject to change at any time specified by the institution. Bank products
represent a taxable alternative income producing product. Bank and thrift
institution account deposits may be insured. Shareholder accounts in the Company
are not insured. Bank savings accounts compete with money market mutual fund
products with respect to certain liquidity features but may not offer all of the
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features available from a money market mutual fund, such as check writing. Bank
checking accounts normally do not pay interest but compete with money market
mutual fund products with respect to certain liquidity features (e.g., the
ability to write checks against the account). Bank certificates of deposit may
offer fixed or variable rates for a set term. (Normally, a variety of terms are
available.) Withdrawal of these deposits prior to maturity will normally be
subject to a penalty. In contrast, shares of a Portfolio are redeemable at the
NAV next determined (normally, $1.00 per share) after a request is received
without charge.
Investors may also want to compare a Portfolio's performance to that of U.S.
Treasury Bills or Notes because such instruments represent alternative income
producing products. Treasury obligations are issued in selected denominations.
Rates of Treasury obligations are fixed at the time of issuance and payment of
principal and interest is backed by the full faith and credit of the U.S.
Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Generally, the values of obligations with shorter maturities will
fluctuate less than those with longer maturities. A Portfolio's yield will
fluctuate.
TAX-EXEMPT VERSUS TAXABLE YIELD. Investors may want to determine which
investment - tax-exempt or taxable - will provide a higher after-tax return. To
determine the tax equivalent yield, simply divide the yield from the tax-exempt
investment by an amount equal to 1 minus the investor's marginal federal income
tax rate.
SHAREHOLDER INFORMATION
Each investment portfolio issues shares of common stock in the Company. The
Board of Directors may increase the number of authorized shares or create
additional series or classes of Company or portfolio shares without shareholder
approval. Shares are fully paid and nonassessable when issued, are transferable
without restriction, and have no preemptive or conversion rights. Shares of the
Company have equal rights with respect to voting, except that the holders of
shares of an investment portfolio will have the exclusive right to vote on
matters affecting only the rights of the holders of that portfolio. For example,
holders of a Portfolio will have the exclusive right to vote on any investment
management agreement or investment restriction that relates only to that
Portfolio. Shareholders of the investment portfolios of the Company do not have
cumulative voting rights, and therefore the holders of more than 50% of the
outstanding shares of the Company voting together for the election of directors
may elect all of the members of the Board of Directors. In such event, the
remaining holders cannot elect any members of the Board of Directors.
The Board of Directors may authorize the issuance of additional shares, and may,
from time to time, classify or reclassify issued or any unissued shares to
create one or more new classes or series in addition to those already authorized
by setting or changing in any one or more respects the designations,
preferences, conversion or other rights,
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voting powers, restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption, of such shares; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of issued shares. Any such classification or
reclassification will comply with the provisions of the Investment Company Act.
The Articles of Incorporation permit the directors to issue the following number
of full and fractional shares, par value $.0001, of the Portfolios: 50 billion
shares of the Money Market Portfolio; 20 billion shares of the U.S. Government
Portfolio; 20 billion shares of the Municipal Portfolio; and 10 billion shares
of the California Municipal Money Market Portfolio (whose shares are not
currently offered by the Company). Each investment portfolio share is entitled
to participate pro rata in the dividends and distributions from that portfolio.
The Company will not normally hold annual shareholders' meetings. Under Maryland
law and the Company's By-laws, an annual meeting is not required to be held in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act. The Company's By-Laws provide that special
meetings of shareholders, unless otherwise provided by law or by the Articles of
Incorporation, may be called for any purpose or purposes by a majority of the
Board of Directors, the Chairman of the Board, the President, or the written
request of the holders of at least 10% of the outstanding shares of capital
stock of the corporation entitled to be voted at such meeting to the extent
permitted by Maryland law.
Each director serves until the next election of directors and until the election
and qualification of his successor or until such director sooner dies, resigns,
retires or is removed by the affirmative vote of a majority of the outstanding
voting securities of the Company. In accordance with the Investment Company Act
(i) the Company will hold a shareholder meeting for the election of directors at
such time as less than a majority of the directors have been elected by
shareholders, and (ii) if, as a result of a vacancy in the Board of Directors,
less than two-thirds of the directors have been elected by the shareholders,
that vacancy will be filled only by a vote of the shareholders.
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ANNEX -- RATINGS OF INVESTMENTS
STANDARD AND POOR'S AND MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
Commercial paper rated by Standard & Poor's has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determine whether the issuer's commercial paper is
rated A-1, A-2 or A-3.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service ("Moody's"). Among the factors considered
by them in assigning ratings are the following: (1) evaluation of the management
of the issuer; (2) economic evaluation of the issuer's industry or industries
and an appraisal of speculative-type risks which may be inherent in certain
areas; (3) evaluation of the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years; (7) financial strength of a
parent company and the relationships that exist with the issuer; and (8)
recognition by the management of obligations which may be present or may arise
as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated Prime-1, -2 or -3.
MIG-1 AND MIG-2 MUNICIPAL NOTES
Ratings of Moody's for state and municipal notes and other short-term loans will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in bond risk are of lesser importance in the short run. Loans
designated MIG-1 are of the best quality, enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both. Loans designated
MIG-2 are of high quality, with margins of protection ample although not so
large as in the preceding group.
STANDARD & POOR'S BOND RATINGS, CORPORATE BONDS
AAA. This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
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AA. Bonds rated AA also qualify as high quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A. Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions.
MOODY'S INVESTORS SERVICE BOND RATINGS
Aaa. Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa. Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long term risks appear somewhat larger than in Aaa securities.
A. Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present that
suggest a susceptibility to impairment sometime in the future.
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PART C
OTHER INFORMATION
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
Item 23. Exhibits.
(a) (1) Articles of Incorporation (see Note A)
(2) Articles of Amendment to Articles of Incorporation dated
October 15, 1996 (See Note A)
(3) Articles of Amendment to Articles of Incorporation dated March
12, 1998 (See Note B)
(4) Articles of Amendment to Articles of Incorporation dated
December 30, 1998 (filed herewith)
(5) Articles of Amendment to Articles of Incorporation dated
February 9, 1999 (filed herewith)
(6) Articles of Amendment to Articles of Incorporation dated March
29, 1999 (filed herewith)
(b) By-Laws, as amended to date (See Note A)
(c) Instruments Defining Shareholder Rights (incorporated by
reference to Exhibits 1 and 2 to the Registration Statement,
as incorporated herein)
(d) Investment Management Agreement between Registrant and
Waterhouse Asset Management, Inc., on behalf of Jack White
Money Market Portfolio, Jack White U.S. Government Portfolio
and Jack White Municipal Portfolio, dated February 26, 1998
(See Note B)
(e) (1) Distribution Agreement between Registrant and Funds
Distributor, Inc., on behalf of Jack White Money Market
Portfolio, Jack White U.S. Government Portfolio and Jack White
Municipal Portfolio, dated February 26, 1998 (See Note C)
(2) Form of Selling Agreement (See Note C)
(f) Inapplicable
(g) (1) Custody Agreement between Registrant and The Bank of New
York, on behalf of Jack White Money Market Portfolio, Jack
White U.S. Government Portfolio and Jack White Municipal
Portfolio, dated February 26, 1998 (filed herewith)
(2) Foreign Custody Manager Agreement between Registrant
and The Bank of New York, on behalf of Jack White Money Market
Portfolio, Jack White U.S. Government Portfolio and Jack White
Municipal Portfolio, dated February 26, 1998 (See Note B)
(h) (1) Transfer Agency and Dividend Disbursing Agency Agreement
between Registrant and National Investor Services Corp., on
behalf of Jack White Money Market Portfolio, Jack White U.S.
Government Portfolio and Jack White Municipal Portfolio, dated
February 26, 1998 (See Note B)
(2) Form of Shareholder Servicing Plan (See Note B)
(3) Form of Shareholder Services Agreement (See Note B)
(4) Shareholder Services Agreement for Waterhouse Securities, Inc.
dated May 11, 1998 (See Note C)
<PAGE>
(5) Administration Agreement between Registrant and Waterhouse
Securities, Inc., on behalf of Jack White Money Market
Portfolio, Jack White U.S. Government Portfolio and Jack White
Municipal Portfolio, dated February 26, 1998 (See Note B)
(6) Sub-Administration Agreement between Waterhouse Securities,
Inc. and Funds Distributor, Inc., on behalf of Jack White
Money Market Portfolio, Jack White U.S. Government Portfolio
and Jack White Municipal Portfolio, dated February 26, 1998
(See Note B)
(7) Accounting Services Agreement between Waterhouse Securities,
Inc. and Countrywide Fund Services, Inc., on behalf of Jack
White Money Market Portfolio, Jack White U.S. Government
Portfolio and Jack White Municipal Portfolio, dated February
26, 1998 (See Note B)
(8) State Filing Services Agreement between Registrant and
Automated Business Development Corporation dated February 26,
1998 (See Note C)
(i) Opinion and Consent of Shereff, Friedman, Hoffman and Goodman,
LLP as to legality of the securities being registered (See
Note C)
(j) Consent of Independent Auditors (filed herewith)
(k) Inapplicable
(l) Subscription Agreement between Registrant and FDI Distribution
Services, Inc., on behalf of Jack White Money Market
Portfolio, Jack White U.S. Government Portfolio and Jack White
Municipal Portfolio, dated May 14, 1998 (See Note C)
(m) Inapplicable
(n) Inapplicable
(o) Inapplicable
Other Exhibits:
Power of Attorney for James F. Rittinger, Anthony J. Pace, Richard W.
Dalrymple, Theodore Rosen and Carolyn B. Lewis dated April 27, 1998
(See Note B)
Note A: Filed as an exhibit to Registrant's Registration Statement on Form
N-1A, File Nos. 333-14527; 811-07871, on October 21, 1996, and
incorporated herein by reference.
Note B: Filed as an exhibit to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, File Nos. 333-14527; 811-07871, on
April 29, 1998, and incorporated herein by reference.
Note C: Filed as an exhibit to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, File Nos. 333-14527; 811-07871, on
May 15, 1998, and incorporated herein by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article IX of the Registrant's Articles of Incorporation, filed as Exhibit
(a)(1) hereto, Article V of the Registrant's By-Laws, filed as Exhibit (b)
hereto, and the Investment Management Agreement, filed as Exhibit (d) hereto,
provide for indemnification.
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The Articles of Incorporation and By-Laws provide that to the fullest
extent that limitations on the liability of directors and officers are permitted
by the Maryland General Corporation Law, no director or officer of the
Registrant shall have any liability to the Registrant or to its shareholders for
damages.
The Articles of Incorporation and By-Laws further provide that the
Registrant shall indemnify and advance expenses to its currently acting and its
former directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law and the Investment Company
Act; that the Registrant shall indemnify and advance expenses to its officers to
the same extent as its directors and to such further extent as is consistent
with applicable law. The Board of Directors may, through by-law, resolution or
agreement, make further provisions for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the Maryland General
Corporation Law. However, nothing in the Articles of Incorporation or By-Laws
protects any director or officer of the Registrant against any liability to the
Registrant or to its shareholders to which he or she would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Section 2-418 of the General Corporation Law of the State of Maryland
provides that a corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity unless it is established that
(i) the act or omission of the director was material to the matter giving rise
to the proceeding; and (a) was committed in bad faith; or (b) was the result of
active and deliberate dishonesty; or (ii) the director actually received an
improper personal benefit in money, property, or services; or (iii) in the case
of any criminal proceeding, the director had reasonable cause to believe that
the act or omission was unlawful. Section 2-418 permits indemnification to be
made against judgments, penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the proceeding; however, if
the proceeding was one by or in the right of the corporation, indemnification
may not be made in respect of any proceeding in which the director shall have
been adjudged to be liable to the corporation. A director may not be indemnified
under Section 2-418 in respect of any proceeding charging improper personal
benefit to the director, whether or not involving action in the director's
official capacity, in which the director was adjudged to be liable on the basis
that personal benefit was improperly received.
Unless limited by the Registrant's charter, a director who has been
successful, on the merits or otherwise, in the defense of any proceeding
referred to above shall be indemnified against any reasonable expenses incurred
by the director in connection with the proceeding. Reasonable expenses incurred
by a director who is a party to a proceeding may be paid or reimbursed by the
corporation in advance of the final disposition of the proceeding upon receipt
by the corporation of (i) a written affirmation by the director of the
director's good faith belief that the standard of conduct necessary for
indemnification by the corporation has been met; and (ii) a written undertaking
by or on behalf of the director to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
The indemnification and advancement of expenses provided or authorized
by Section 2-418 may not be deemed exclusive of any other rights, by
indemnification or otherwise, to which a director may be entitled under the
charter, the bylaws, a resolution of stockholders or directors, an agreement or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office.
Under Section 2-418, a corporation may indemnify and advance expenses
to an officer, employee, or agent of the corporation to the same extent that it
may indemnify directors and a corporation, in addition, may indemnify and
advance expenses to an officer, employee, or agent who is not a director to such
further extent, consistent with law, as may be provided by its charter, bylaws,
general or specific action of its board of directors or contract.
Under Section 2-418, a corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position, whether or not
the corporation would have the power to indemnify against liability under the
provisions of such Section. A corporation also may provide similar protection,
including a trust fund, letter of credit,
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or surety bond, not inconsistent with the foregoing. The insurance or similar
protection may be provided by a subsidiary or an affiliate of the corporation.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 26. Business and Other Connections of Investment Adviser.
(a) Waterhouse Asset Management, Inc. The following persons are the
directors and officers of Waterhouse Asset Management, Inc.
DAVID HARTMAN*, Senior Vice President and Chief Investment Officer.
From February 1995 through August 1995, Mr. Hartman served as Senior Vice
President and Senior Portfolio Manager of Fixed Income Separate Accounts at
Mitchell Hutchins - Paine Webber. Mr. Hartman also served in similar capacities
for Kidder Peabody & Co. from 1983 to 1995.
RICHARD H. NEIMAN*, Director and Secretary. Mr. Neiman has served as
Executive Vice President, General Counsel, Director and Secretary of Waterhouse
Investor Services, Inc. since July 1994. Mr. Neiman also serves in similar
capacities for Waterhouse Securities, Inc. Mr. Neiman has served as General
Counsel, Director and Secretary of Waterhouse National Bank and National
Investor Services Corp. since July 1994 and September 1995, respectively.
FRANK J. PETRILLI*, Director. Mr. Petrilli has served as Chairman,
President and Chief Executive Officer of Waterhouse Asset Management, Inc. since
January 1997. Mr. Petrilli has served as Chief Executive Officer of Waterhouse
Investor Services, Inc. since March 1998 and President since January 1995. He
also served as Chief Operating Officer of Waterhouse Investor Services, Inc.
from January 1995 to March 1998. Since August 1998, Mr. Petrilli has served as
Vice Chairman of Waterhouse Securities, Inc. Mr. Petrilli has served as a
Director of Waterhouse National Bank and National Investor Services Corp. since
March 1995 and September 1995, respectively. Prior to that, Mr. Petrilli served
as President and Chief Operating Officer of American Express Centurion Bank from
May 1993 to January 1995 and Chief Financial Officer from January 1991 to May
1993.
B. KEVIN STERNS**, Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Sterns has served as Executive Vice President, Chief Financial
Officer and Treasurer of Waterhouse Investor Services, Inc. and Waterhouse
Securities, Inc. since October 1996. Mr. Sterns is currently Vice President of
Toronto-Dominion Bank and has served in various positions in this firm since
October 1970.
MICHELE R. TEICHNER*, Senior Vice President Operations and Compliance.
Ms. Teichner has been serving as Senior Vice President of Waterhouse Asset
Management, Inc. since August 1996, with responsibility for operations and
compliance. From August 1994 to July 1996, Ms. Teichner served as President of
Mutual Fund Training & Consulting, Inc.
LAWRENCE M. WATERHOUSE, JR.*, Director. Mr. Waterhouse has served as
Chairman of Waterhouse Investor Services, Inc. since its inception in 1987 and
Chief Executive Officer from August 1989 to March 1998. Mr. Waterhouse is the
founder of Waterhouse Securities, Inc. and has served as Chief Executive Officer
since its inception in March 1979. Mr. Waterhouse has also served as Director
of National Investor Services Corp. since September 1995.
-4-
<PAGE>
* Address: 100 Wall Street, New York, NY 10005
** Address: 55 Water Street, New York, NY 10041
Item 27. Principal Underwriters.
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
The Brinson Funds
CDC MPT+ Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Kobrick Investment Trust
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
WEBS Index Fund, Inc.
The Distributor is registered with the SEC as a broker-dealer and is a
member of the National Association of Securities Dealers. The Distributor is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
-5-
<PAGE>
(b) The following is a list of the executive officers and directors of
Funds Distributor, Inc.:
Director, President and Chief Executive Marie E. Connolly
Officer
Executive Vice President George A. Rio
Executive Vice President Donald R. Roberson
Executive Vice President William S. Nichols
Senior Vice President, General Counsel, Margaret W. Chambers
Chief Compliance Officer, Secretary
and Clerk
Director, Senior Vice President, Joseph F. Tower, III
Treasurer and Chief Financial Officer
Senior Vice President Paula R. David
Senior Vice President Gary S. MacDonald
Senior Vice President Judith K. Benson
Chairman and Director William J. Nutt
(c) Not applicable.
Item 28. Location of Accounts and Records.
All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the Rules thereunder
are maintained at the offices of the Registrant, the offices of the Registrant's
Investment Manager and Administrator, Waterhouse Asset Management, Inc. and
Waterhouse Securities, Inc., respectively, 100 Wall Street, New York, New York
10005, or (i) in the case of records concerning custodial functions, at the
offices of the Registrant's Custodian, The Bank of New York, 48 Wall Street, New
York, New York 10286; (ii) in the case of records concerning transfer agency
functions, at the offices of the Registrant's transfer agent, National Investor
Services Corp., 55 Water Street, New York, New York 10041; (iii) in the case of
records concerning distribution, administration and certain other functions, at
the offices of the Registrant's or Company's Distributor and Sub-Administrator,
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109; and (iv) in the case of records concerning fund accounting functions, at
the offices of the Registrant's or Company's fund accountant, Countrywide Fund
Services, Inc., 312 Walnut Street, Cincinnati, Ohio 45202.
Item 29. Management Services.
Not applicable.
Item 30. Undertakings.
Not applicable.
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and Commonwealth of Massachusetts on the 29th
day of June, 1999.
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
Registrant
/s/ Christopher J. Kelley
By: -------------------------
Christopher J. Kelley
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on behalf of the following persons
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ George A. Rio President, Treasurer and June 29, 1999
- ------------------- Chief Financial Officer
George A. Rio
James F. Rittinger* Chairman of the Board June 29, 1999
and Director
Anthony J. Pace* Director June 29, 1999
Richard W. Dalrymple* Director June 29, 1999
Theodore Rosen* Director June 29, 1999
Carolyn B. Lewis* Director June 29, 1999
*...By: /s/ Richard H. Neiman
---------------------
.. Richard H. Neiman
.... Attorney-in-Fact pursuant to a power of attorney
-7-
<PAGE>
INDEX TO EXHIBITS
(a)(4) Articles of Amendment to Articles of Incorporation dated December 30,
1998
(a)(5) Articles of Amendment to Articles of Incorporation dated February 9,
1999
(a)(6) Articles of Amendment to Articles of Incorporation dated March 29,
1999
(g)(1) Custody Agreement
(j) Consent of Independent Auditors
-8-
<PAGE>
EXHIBIT (a)(4)
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
National Investors Cash Management Fund, Inc., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust Incorporated, 300
East Lombard Street, Baltimore, Maryland 21202 (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by these
Articles of Incorporation as follows:
In each instance in which the words "Kennedy Cabot Money
Market Portfolio" appear in the Articles of Incorporation, the
words "Kennedy Cabot Money Market Portfolio" shall be deleted
and the words "Jack White Money Market Portfolio" shall be
substituted therefor; and
In each instance in which the words "Kennedy Cabot U.S.
Government Portfolio" appear in the Articles of Incorporation,
the words "Kennedy Cabot U.S. Government Portfolio" shall be
deleted and the words "Jack White U.S. Government Portfolio"
shall be substituted therefor; and
In each instance in which the words "Kennedy Cabot Municipal
Portfolio" appear in the Articles of Incorporation, the words
"Kennedy Cabot Municipal Portfolio" shall be deleted and the
words "Jack White Municipal Portfolio" shall be substituted
therefor.
SECOND: The foregoing amendments have been effected in the manner by
the vote required by the Corporation's charter and laws of the State of
Maryland. The amendments were approved by a majority of the Board of Directors
of the Corporation without action of the stockholders in accordance with Section
2-605(a)(4) of the Maryland General Corporation Law, and the Corporation is
registered as an open-end investment company under the Investment Company Act of
1940.
THIRD: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
The Vice President and Assistant Treasurer acknowledges these Articles
of Amendments to be the corporate act of the Corporation and states that to the
best of his knowledge, information and belief, the matters set forth in these
Articles of the
<PAGE>
Corporation's charter are true in all respects, and that this statement is made
under the penalties of perjury.
IN WITNESS WHEREOF, NATIONAL INVESTORS CASH MANAGEMENT FUND, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf by
its Vice President and Assistant Treasurer, duly authorized officer of the
Corporation, and attests by its Assistant Secretary, effective the 30th day of
December, 1998.
NATIONAL INVESTORS CASH
MANAGEMENT FUND, INC.
/s/ Thomas Textor
--------------------------------------
Thomas Textor
Vice President and Assistant Treasurer
ATTEST:
/s/ Arnold Feist
- ----------------------
Arnold Feist
Assistant Secretary
<PAGE>
EXHIBIT (a)(5)
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust Incorporated, 300
East Lombard Street, Baltimore, MD 21202 (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The charter of the Corporation is hereby amended by deleting
Article III, Section (2) in its entirety and inserting the following in lieu
thereof:
"(2) To hold, invest and reinvest in assets in securities, and in
connection therewith to hold part or all of its assets (a) in cash
and/or (b) in shares of another registered investment company known in
the investment company industry as a master fund, which company holds
securities and other assets for investment purposes (the "Master
Fund")."
SECOND: The charter of the Corporation is hereby further amended by
adding the following provision as Article III, Section (5), and renumbering
Article III, Section (5) thereof as Article III, Section (6):
"(5) To transfer all or substantially all the assets of the Corporation
(or the assets of a series thereof) in exchange for shares in a Master
Fund or for such other consideration as permitted by the General Laws
of the State of Maryland and the Investment Company Act (all without
the vote or consent of the stockholders of the Corporation), and all
such actions, regardless of the frequency with which they are pursued,
shall be deemed in furtherance of the ordinary, usual and customary
business of the Corporation."
THIRD: The charter of the Corporation is hereby further amended by
deleting Article V, Section (9) in its entirety and inserting the following in
lieu thereof:
"(9) Unless otherwise expressly provided in the charter of the
Corporation, including those matters set forth in Article III, Sections
(4) and (5) hereof and including any Articles Supplementary thereto, on
each matter submitted to a vote of stockholders, each holder of a share
of stock of the Corporation shall be entitled to one vote for each
share standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided,
however, that (a) as to any matter with
<PAGE>
respect to which a separate vote of any class or series is required by
the Investment Company Act, or any rules, regulations or orders issued
thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall apply
in lieu of a general vote of all classes and series as described above,
(b) in the event that the separate vote requirements referred to in (a)
above apply with respect to one or more classes or series, then,
subject to paragraph (c) below, the shares of all other classes and
series not entitled to a separate class vote shall vote as a single
class, and (c) as to any matter which does not affect the interest of a
particular class or series, such class or series shall not be entitled
to any vote and only the holders of shares of the affected classes and
series, if any, shall be entitled to vote. The shares of capital stock
shall have no voting rights in connection with the transfer of all or
substantially all the assets of the Corporation (or the assets of a
series thereof) to a Master Fund in exchange for shares in such Master
Fund or for such other consideration as permitted by the General Laws
of the State of Maryland and the Investment Company Act."
FOURTH: The charter of the Corporation is hereby further amended by
adding the following provision as Article VIII, Section (10):
"(10) Notwithstanding any other provision of these Articles of
Incorporation or the By-Laws of the Corporation, or the General Laws of
the State of Maryland, the Board of Directors of the Corporation is
vested with the sole power, to the exclusion of the stockholders, upon
the affirmative vote of the majority of the entire Board of Directors,
to transfer all or substantially all the assets of the Corporation (or
the assets of a series thereof) to a Master Fund in exchange for shares
in such Master Fund or for such other consideration as permitted by the
General Laws of the State of Maryland and the Investment Company Act."
FIFTH: The foregoing amendments have been effected in the manner and
by the vote required by the Corporation's charter and the laws of the State of
Maryland. The foregoing amendments were adopted and deemed advisable by
unanimous written consent of the Corporation's Board of Directors and approved
by the vote of the sole stockholder of the Corporation entitled to vote on the
matter.
SIXTH: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
SEVENTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
<PAGE>
The Vice President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief, the matters set forth in these Articles of Amendment
with respect to the authorization and approval of the amendment of the
Corporation's charter are true in all material respects, and that this statement
is made under the penalties for perjury.
IN WITNESS WHEREOF, NATIONAL INVESTORS CASH MANAGEMENT FUND, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf by
its Vice President, a duly authorized officer of the Corporation, and attested
by its Assistant Secretary, as of the 9th day of February, 1999.
NATIONAL INVESTORS CASH
MANAGEMENT FUND, INC.
/s/ Christopher J. Kelley
----------------------------
Christopher J. Kelley
Vice President and Secretary
ATTEST:
/s/ Karen Jacoppo-Wood
- --------------------------------------
Karen Jacoppo-Wood
Vice President and Assistant Secretary
<PAGE>
EXHIBIT (a)(6)
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
National Investors Cash Management Fund, Inc., a Maryland corporation
having its principal Maryland office c/o The Corporation Trust Incorporated, 300
East Lombard Street, Baltimore, Maryland 21202 (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Article V(1) of the Corporation's charter is hereby amended
in its entirety to read as follows:
The total number of shares which the Corporation has authority
to issue is one hundred billion (100,000,000,000) shares of
common stock (par value $0.0001 per share), amounting in
aggregate par value to ten million dollars ($10,000,000.00).
All of such shares of common stock are classified into four
separate series to be known as "Jack White Money Market
Portfolio," "Jack White U.S. Government Portfolio," "Jack
White Municipal Portfolio," and the "Jack White California
Municipal Money Market Portfolio." Each such series shall be
divided as follows: the Jack White Money Market Portfolio
shall consist of fifty billion (50,000,000,000) shares; the
Jack White U.S. Government Portfolio shall consist of twenty
billion (20,000,000,000) shares; the Jack White Municipal
Portfolio shall consist of twenty billion (20,000,000,000)
shares; and the Jack White California Municipal Money Market
Portfolio shall consist of ten billion (10,000,000,000)
shares. All of the shares of each such series are classified
as a single class.
SECOND: The foregoing amendments have been effected in the manner and
by the vote required by the Corporation's charter and the laws of the State of
Maryland. The amendments were approved by a majority of the Board of Directors
of the Corporation, and at the time of approval by the Board of Directors there
were no shares of stock of the Corporation entitled to vote on the matter either
outstanding or subscribed for.
THIRD: Except as amended hereby, the Corporation's charter shall
remain in full force and effect.
<PAGE>
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
The Vice President and Secretary acknowledges these Articles of
Amendment to be the corporate act of the Corporation and states that to the best
of his knowledge, information and belief, the matters set forth in these
Articles of Amendment with respect to the authorization and approval of the
amendment of the Corporation's charter are true in all material respects, and
that this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, NATIONAL INVESTORS CASH MANAGEMENT FUND, INC. has
caused these Articles of Amendment to be signed in its name and on its behalf by
its Vice President and Secretary, a duly authorized officer of the Corporation,
and attested by its Assistant Secretary, effective the 29th day of March, 1999.
NATIONAL INVESTORS CASH
MANAGEMENT FUND, INC.
/s/ Christopher J. Kelley
-----------------------------
Christopher J. Kelley
Vice President and Secretary
ATTEST:
/s/ Karen Jacoppo-Wood
- -------------------------
Karen Jacoppo-Wood
Assistant Secretary
<PAGE>
EXHIBIT (g)(1)
CUSTODY AGREEMENT
Agreement made as of this 28th day of February, 1998, between NATIONAL
INVESTORS CASH MANAGEMENT FUND, INC., a Maryland corporation organized and
existing under the laws of the State of Maryland, having its principal office
and place of business at 100 Wall Street, New York, New York 10005 (hereinafter
called the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized
to do a banking business, having its principal office and place of business at
48 Wall Street, New York, New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
1. "Authorized Persons" shall be deemed to include any person, whether or not
such person is an officer or employee of the Fund, duly authorized by the Board
of Directors of the Fund to execute any Certificate, instruction, notice or
other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system
for United States and federal agency securities, its successor or successors and
its nominee or nominees.
3. "Call Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and payment of the exercise price, as
specified therein, to purchase from the writer thereof the specified underlying
Securities.
4. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement to be given to the Custodian
which is actually received by the Custodian and signed on behalf of the Fund by
any two Authorized Persons, and the term Certificate shall also include
Instructions.
5. "Clearing Member" shall mean a registered broker-dealer which is a clearing
member under the rules of O.C.C. and a member of a national securities exchange
<PAGE>
qualified to act as a custodian for an investment company, or any broker-dealer
reasonably believed by the Custodian to be such a clearing member.
6. "Collateral Account" shall mean a segregated account so denominated which is
specifically allocated to a Series and pledged to the Custodian as security for,
and in consideration of, the Custodian's issuance of (a) any Put Option
guarantee letter or similar document described in paragraph 8 of Article V
herein, or (b) any receipt described in Article V or VIII herein.
7. "Composite Currency Unit" shall mean the European Currency Unit or any other
composite unit consisting of the aggregate of specified amounts of specified
Currencies as such unit may be constituted from time to time.
8. "Covered Call Option" shall mean an exchange traded option entitling the
holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
9. "Currency" shall mean money denominated in a lawful currency of any country
or the European Currency Unit.
10. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing
agency registered with the Securities and Exchange Commission, its successor or
successors and its nominee or nominees. The term "Depository" shall further mean
and include any other person authorized to act as a depository under the
Investment Company Act of 1940, its successor or successors and its nominee or
nominees, specifically identified in a certified copy of a resolution of the
Fund's Board of Directors specifically approving deposits therein by the
Custodian.
11. "Financial Futures Contract" shall mean the firm commitment to buy or sell
fixed income securities including, without limitation, U.S. Treasury Bills, U.S.
Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit, and
Eurodollar certificates of deposit, during a specified month at an agreed upon
price.
12. "Futures Contract" shall mean a Financial Futures Contract and/or Stock
Index Futures Contracts.
13. "Futures Contract Option" shall mean an option with respect to a Futures
Contract.
14. "FX Transaction" shall mean any transaction for the purchase by one party of
an agreed amount in one Currency against the sale by it to the other party of an
agreed amount in another Currency.
15. "Instructions" shall mean instructions communications transmitted by
electronic or telecommunications media including S.W.I.F.T.,
computer-to-computer interface,
<PAGE>
dedicated transmission line, facsimile transmission (which may be signed by an
Authorized Person or unsigned) and tested telex.
16. "Margin Account" shall mean a segregated account in the name of a broker,
dealer, futures commission merchant, or a Clearing Member, or in the name of the
Fund for the benefit of a broker, dealer, futures commission merchant, or
Clearing Member, or otherwise, in accordance with an agreement between the Fund,
the Custodian and a broker, dealer, futures commission merchant or a Clearing
Member (a "Margin Account Agreement"), separate and distinct from the custody
account, in which certain Securities and/or money of the Fund shall be deposited
and withdrawn from time to time in connection with such transactions as the Fund
may from time to time determine. Securities held in the Book-Entry System or the
Depository shall be deemed to have been deposited in, or withdrawn from, a
Margin Account upon the Custodian's effecting an appropriate entry in its books
and records.
17. "Money Market Security" shall be deemed to include, without limitation,
certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as
to interest and principal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper,
certificates of deposit and bankers' acceptances, repurchase agreements with
respect to the same and bank time deposits, where the purchase and sale of such
securities normally requires settlement in federal funds on the same day as such
purchase or sale.
18. "O.C.C." shall mean the Options Clearing Corporation, a clearing agency
registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
19. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option
and/or a Put Option.
20. "Oral Instructions" shall mean verbal instructions actually received by the
Custodian from an Authorized Person or from a person reasonably believed by the
Custodian to be an Authorized Person.
21. "Put Option" shall mean an exchange traded option with respect to Securities
other than Stock Index Options, Futures Contracts, and Futures Contract Options
entitling the holder, upon timely exercise and tender of the specified
underlying Securities, to sell such Securities to the writer thereof for the
exercise price.
22. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which the
Fund sells Securities and agrees to repurchase such Securities at a described or
specified date and price.
23. "Security" shall be deemed to include, without limitation, Money Market
Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures
<PAGE>
Contracts, Stock Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks
and other securities having characteristics similar to common stocks, preferred
stocks, debt obligations issued by state or municipal governments and by public
authorities, (including, without limitation, general obligation bonds, revenue
bonds, industrial bonds and industrial development bonds), bonds, debentures,
notes, mortgages or other obligations, and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase, sell or subscribe
for the same, or evidencing or representing any other rights or interest
therein, or any property or assets.
24. "Senior Security Account" shall mean an account maintained and specifically
allocated to a Series under the terms of this Agreement as a segregated account,
by recordation or otherwise, within the custody account in which certain
Securities and/or other assets of the Fund specifically allocated to such Series
shall be deposited and withdrawn from time to time in accordance with
Certificates received by the Custodian in connection with such transactions as
the Fund may from time to time determine.
25. "Series" shall mean the various portfolios, if any, of the Fund listed on
Appendix B hereto as amended from time to time.
26."Shares" shall mean the shares of capital stock of the Fund, each of which
is, in the case of a Fund having Series, allocated to a particular Series.
27. "Stock Index Futures Contract" shall mean a bilateral agreement pursuant to
which the parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the value of a particular
stock index at the close of the last business day of the contract and the price
at which the futures contract is originally struck.
28. "Stock Index Option" shall mean an exchange traded option entitling the
holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
ARTICLE II.
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of the
Securities and money at any time owned by the Fund during the period of this
Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to
perform the duties thereof as hereinafter set forth.
ARTICLE III.
<PAGE>
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, the Fund will deliver or cause to be delivered to the Custodian all
Securities and all money owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and money not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and money is not
finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and money deposited
in either the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Directors, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and
on-going basis, until instructed to the contrary by a Certificate actually
received by the Custodian, to accept, utilize and act in accordance with such
confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the name of
each Series, and shall credit to the separate account for each Series all money
received by it for the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed by the Custodian
only:
<PAGE>
(a) as hereinafter provided;
(b) pursuant to Certificates setting forth the name and address of the person to
whom the payment is to be made, the Series account from which payment is to be
made and the purpose for which payment is to be made; or
(c) in payment of the fees and in reimbursement of the expenses and liabilities
of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian shall furnish
the Fund with confirmations and a summary, on a per Series basis, of all
transfers to or from the account of the Fund for a Series, either hereunder or
with any co-custodian or sub-custodian appointed in accordance with this
Agreement during said day. Where Securities are transferred to the account of
the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
money held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in Article
VIII, all Securities held by the Custodian hereunder, which are issued or
issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all Securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) collect all income, dividends and distributions due or payable;
<PAGE>
(b) give notice to the Fund and present payment and collect the amount payable
upon such Securities which are called, but only if either (i) the Custodian
receives a written notice of such call, or (ii) notice of such call appears in
one or more of the publications listed in Appendix C annexed hereto, which may
be amended at any time by the Custodian without the prior notification or
consent of the Fund;
(c) present for payment and collect the amount payable upon all Securities which
mature;
(d) surrender Securities in temporary form for definitive Securities;
(e) execute, as custodian, any necessary declarations or certificates of
ownership under the Federal Income Tax Laws or the laws or regulations of any
other taxing authority now or hereafter in effect;
(f) hold directly, or through the Book-Entry System or the Depository with
respect to Securities therein deposited, for the account of a Series, all rights
and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder; and
(g) deliver to the Fund all notices, proxies, proxy soliciting materials,
consents and other written information (including, without limitation, notices
of tender offers and exchange offers, pendency of calls, maturities of
Securities and expiration of rights) relating to Securities held pursuant to
this Agrement which are actually received by the Custodian, such proxies and
other similar materials to be executed by the registered owner (if Securities
are registered otherwise than in the name of the Fund), but without indicating
the manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian, directly or
through the use of the Book-Entry System or the Depository, shall:
(a) execute and deliver to such persons as may be designated in such Certificate
proxies, consents, authorizations, and any other instruments whereby the
authority of the Fund as owner of any Securities held by the Custodian hereunder
for the Series specified in such Certificate may be exercised;
(b) deliver any Securities held by the Custodian hereunder for the Series
specified in such Certificate in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization, refinancing, merger,
consolidation or recapitalization of any corporation, or the exercise of any
conversion privilege and receive and hold hereunder specifically allocated to
such Series any cash or other Securities received in exchange;
(c) deliver any Securities held by the Custodian hereunder for the Series
specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to
<PAGE>
such Series such certificates of deposit, interim receipts or other instruments
or documents as may be issued to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of the Series specified in
such Certificate, and take such other steps as shall be stated in such
Certificate to be for the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) present for payment and collect the amount payable upon Securities not
described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the Custodian shall
not be required to obtain possession of any instrument or certificate
representing any Futures Contract, any Option, or any Futures Contract Option
until after it shall have determined, or shall have received a Certificate from
the Fund stating, that any such instruments or certificates are available. The
Fund shall deliver to the Custodian such a Certificate no later than the
business day preceding the availability of any such instrument or certificate.
Prior to such availability, the Custodian shall comply with Section 17(f) of the
Investment Company Act of 1940, as amended, in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or futures commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin
Account, and payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and conditions of the Margin
Account Agreement. Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV.
<PAGE>
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a purchase
of an Option, a Futures Contract, or a Futures Contract Option, the Fund shall
deliver to the Custodian (i) with respect to each purchase of Securities which
are not Money Market Securities, a Certificate, and (ii) with respect to each
purchase of Money Market Securities, a Certificate or Oral Instructions,
specifying with respect to each such purchase: (a) the Series to which such
Securities are to be specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the principal amount
purchased and accrued interest, if any; (d) the date of purchase and settlement;
(e) the purchase price per unit; (f) the total amount payable upon such
purchase; (g) the name of the person from whom or the broker through whom the
purchase was made, and the name of the clearing broker, if any; and (h) the name
of the broker to whom payment is to be made. The Custodian shall, upon receipt
of Securities purchased by or for the Fund, pay to the broker specified in the
Certificate out of the money held for the account of such Series the total
amount payable upon such purchase, provided that the same conforms to the total
amount payable as set forth in such Certificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund, other than a sale of any
Option, Futures Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a Certificate, and (ii)
with respect to each sale of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such sale: (a) the Series to which
such Securities were specifically allocated; (b) the name of the issuer and the
title of the Security; (c) the number of shares or principal amount sold, and
accrued interest, if any; (d) the date of sale; (e) the sale price per unit; (f)
the total amount payable to the Fund upon such sale; (g) the name of the broker
through whom or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom the Securities
are to be delivered. The Custodian shall deliver the Securities specifically
allocated to such Series to the broker specified in the Certificate against
payment of the total amount payable to the Fund upon such sale, provided that
the same conforms to the total amount payable as set forth in such Certificate
or Oral Instructions.
ARTICLE V.
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund shall deliver
to the Custodian a Certificate specifying with respect to each Option purchased:
(a) the Series to which such Option is specifically allocated; (b) the type of
Option (put or call); (c) the name of the issuer and the title and number of
shares subject to such Option or, in the case of a Stock Index Option, the stock
index to which such Option relates and the number of Stock Index Options
purchased; (d) the expiration date; (e) the exercise price;
<PAGE>
(f) the dates of purchase and settlement; (g) the total amount payable by the
Fund in connection with such purchase; (h) the name of the Clearing Member
through whom such Option was purchased; and (i) the name of the broker to whom
payment is to be made. The Custodian shall pay, upon receipt of a Clearing
Member's statement confirming the purchase of such Option held by such Clearing
Member for the account of the Custodian (or any duly appointed and registered
nominee of the Custodian) as custodian for the Fund, out of money held for the
account of the Series to which such Option is to be specifically allocated, the
total amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant to
paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Call Option: (a) the Series to which
such Call Option was specifically allocated; (b) the name of the issuer and the
title and number of shares subject to the Call Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per share; (f)
the total amount to be paid by the Fund upon such exercise; and (g) the name of
the Clearing Member through whom such Call Option was exercised. The Custodian
shall, upon receipt of the Securities underlying the Call Option which was
exercised, pay out of the money held for the account of the Series to which such
Call Option was specifically allocated the total amount payable to the Clearing
Member through whom the Call Option was exercised, provided that the same
conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of the issuer and the
title and number of shares subject to the Put Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per share; (f)
the total amount to be paid to the Fund upon such exercise; and (g) the name of
the Clearing Member through whom such Put Option was exercised. The Custodian
shall, upon receipt of the amount payable upon the exercise of
<PAGE>
the Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Stock Index Option: (a)
the Series to which such Stock Index Option was specifically allocated; (b) the
type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Covered
Call Option: (a) the Series for which such Covered Call Option was written; (b)
the name of the issuer and the title and number of shares for which the Covered
Call Option was written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f) the date
such Covered Call Option was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall deliver or cause
to be delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such receipts as are
required in accordance with the customs prevailing among Clearing Members
dealing in Covered Call Options and shall impose, or direct the Depository to
impose, upon the underlying Securities specified in the Certificate specifically
allocated to such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series for which such Put Option was written; (b) the name of the issuer and the
title and number of shares for which the Put Option is written and which
underlie the same; (c) the expiration
<PAGE>
date; (d) the exercise price; (e) the premium to be received by the Fund; (f)
the date such Put Option is written; (g) the name of the Clearing Member through
whom the premium is to be received and to whom a Put Option guarantee letter is
to be delivered; (h) the amount of cash, and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in the
Senior Security Account for such Series; and (i) the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited into the Collateral Account for such Series. The Custodian shall,
after making the deposits into the Collateral Account specified in the
Certificate, issue a Put Option guarantee letter substantially in the form
utilized by the Custodian on the date hereof, and deliver the same to the
Clearing Member specified in the Certificate against receipt of the premium
specified in said Certificate. Notwithstanding the foregoing, the Custodian
shall be under no obligation to issue any Put Option guarantee letter or similar
document if it is unable to make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the preceding
paragraph is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Put Option was written; (b)
the name of the issuer and title and number of shares subject to the Put Option;
(c) the Clearing Member from whom the underlying Securities are to be received;
(d) the total amount payable by the Fund upon such delivery; (e) the amount of
cash and/or the amount and kind of Securities specifically allocated to such
Series to be withdrawn from the Collateral Account for such Series and (f) the
amount of cash and/or the amount and kind of Securities, specifically allocated
to such Series, if any, to be withdrawn from the Senior Security Account. Upon
the return and/or cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put Option, the
Custodian shall pay out of the money held for the account of the Series to which
such Put Option was specifically allocated the total amount payable to the
Clearing Member specified in the Certificate as set forth in such Certificate
against delivery of such Securities, and shall make the withdrawals specified in
such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
whether such Stock Index Option is a put or a call; (c) the number of options
written; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through whom such Option
was written; (h) the premium to be received by the Fund; (i) the amount of cash
and/or the amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Senior Security Account for such Series; (j) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Collateral Account for such
Series; and (k) the amount of cash and/or the amount and kind of Securities, if
any, specifically allocated to such Series to be deposited in a Margin Account,
and the name in which such account is to be or has been established. The
Custodian shall, upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account specified in the
Certificate, and either (1) deliver such receipts, if any, which the Custodian
has specifically agreed to issue, which are in accordance with the customs
prevailing among
<PAGE>
Clearing Members in Stock Index Options and make the deposits into the
Collateral Account specified in the Certificate, or (2) make the deposits into
the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in the
preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the money held for the account of the Series to which
such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously written
Option described in paragraphs, 6, 8 or 10 of this Article in a transaction
expressly designated as a "Closing Purchase Transaction" in order to liquidate
its position as a writer of an Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to the Option being purchased:
(a) that the transaction is a Closing Purchase Transaction; (b) the Series for
which the Option was written; (c) the name of the issuer and the title and
number of shares subject to the Option, or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Options held; (d)
the exercise price; (e) the premium to be paid by the Fund; (f) the expiration
date; (g) the type of Option (put or call); (h) the date of such purchase; (i)
the name of the Clearing Member to whom the premium is to be paid; and (j) the
amount of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Collateral Account, a specified Margin Account, or the Senior Security
Account for such Series. Upon the Custodian's payment of the premium and the
return and/or cancellation of any receipt issued pursuant to paragraphs 6, 8 or
10 of this Article with respect to the Option being liquidated through the
Closing Purchase Transaction, the Custodian shall remove, or direct the
Depository to remove, the previously imposed restrictions on the Securities
underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein,
and upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be
<PAGE>
specified in a Certificate received in connection with such expiration,
exercise, or consummation.
ARTICLE VI.
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall deliver
to the Custodian a Certificate specifying with respect to such Futures Contract,
(or with respect to any number of identical Futures Contract(s)): (a) the Series
for which the Futures Contract is being entered; (b) the category of Futures
Contract (the name of the underlying stock index or financial instrument); (c)
the number of identical Futures Contracts entered into; (d) the delivery or
settlement date of the Futures Contract(s); (e) the date the Futures Contract(s)
was (were) entered into and the maturity date; (f) whether the Fund is buying
(going long) or selling (going short) on such Futures Contract(s); (g) the
amount of cash and/or the amount and kind of Securities, if any, to be deposited
in the Senior Security Account for such Series; (h) the name of the broker,
dealer, or futures commission merchant through whom the Futures Contract was
entered into; and (i) the amount of fee or commission, if any, to be paid and
the name of the broker, dealer, or futures commission merchant to whom such
amount is to be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the money specifically
allocated to such Series of the fee or commission, if any, specified in the
Certificate and deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment required to be made by
the Fund to a broker, dealer, or futures commission merchant with respect to an
outstanding Futures Contract, shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker, dealer, or
futures commission merchant to the Fund with respect to an outstanding Futures
Contract, shall be received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is retained by
the Fund until delivery or settlement is made on such Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying: (a) the Futures
Contract and the Series to which the same relates; (b) with respect to a Stock
Index Futures Contract, the total cash settlement amount to be paid or received,
and with respect to a Financial Futures Contract, the Securities and/or amount
of cash to be delivered or received; (c) the broker, dealer, or futures
commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
<PAGE>
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a Futures
Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
5. Notwithstanding any other provision in this Agreement to the contrary, the
Custodian shall deliver cash and Securities to a futures commission merchant
upon receipt of a Certificate from the Fund specifying: (a) the name of the
futures commission merchant; (b) the specific cash and Securities to be
delivered; (c) the date of such delivery; and (d) the date of the agreement
between the Fund and such futures commission merchant entered pursuant to Rule
17f-6 under the Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and warranty by
the Fund that the Rule 17f-6 agreement has been duly authorized, executed and
delivered by the Fund and the futures commission merchant and complies with Rule
17f-6, and (y) an agreement by the Fund that the Custodian shall not be liable
for the acts or omissions of any such futures commission merchant.
ARTICLE VII.
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the Fund, the
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the Series to which such Option is
specifically allocated; (b) the type of Futures Contract Option (put or call);
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the amount of premium to be paid by the Fund upon
such purchase; (h) the name of the broker or futures commission merchant through
whom such option was purchased; and (i) the name of the broker, or futures
commission merchant, to whom payment is to be made. The Custodian shall pay out
of the money specifically allocated to such Series, the total amount to be paid
upon such purchase to the broker or futures commissions merchant through whom
the purchase was made, provided that the same conforms to the amount set forth
in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by the Fund
<PAGE>
pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the Custodian
a Certificate specifying with respect to each such sale: (a) the Series to which
such Futures Contract Option was specifically allocated; (b) the type of Futures
Contract Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon such sale; and (h)
the name of the broker or futures commission merchant through whom the sale was
made. The Custodian shall consent to the cancellation of the Futures Contract
Option being closed against payment to the Custodian of the total amount payable
to the Fund, provided the same conforms to the total amount payable as set forth
in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e)the name of
the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the money and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Futures
Contract Option: (a) the Series for which such Futures Contract Option was
written; (b) the type of Futures Contract Option (put or call); (c) the type of
Futures Contract and such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the money and Securities specifically allocated to such
Series the deposits into the Senior Security Account, if any, as specified in
the Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call is
exercised, the Fund shall promptly deliver to the Custodian a Certificate
specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying
<PAGE>
the Futures Contract Option; (d) the name of the broker or futures commission
merchant through whom such Futures Contract Option was exercised; (e) the net
total amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount of
cash and/or the amount and kind of Securities to be deposited in the Senior
Security Account for such Series. The Custodian shall, upon its receipt of the
net total amount payable to the Fund, if any, specified in such Certificate make
the payments, if any, and the deposits, if any, into the Senior Security Account
as specified in the Certificate. The deposits, if any, to be made to the Margin
Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and which is
a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the money and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to a
previously written Futures Contract Option described in this Article in order to
liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing transaction with
respect to, any Futures Contract Option written or purchased by the Fund and
described in this Article, the Custodian shall (a) delete such Futures Contract
Option from the
<PAGE>
statements delivered to the Fund pursuant to paragraph 3 of Article III herein
and, (b) make such withdrawals from and/or in the case of an exercise such
deposits into the Senior Security Account as may be specified in a Certificate.
The deposits to and/or withdrawals from the Margin Account, if any, shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a Futures
Contract Option described in this Article shall be subject to Article VI hereof.
10. Notwithstanding any other provision in this Agreement to the contrary, the
Custodian shall deliver cash and Securities to a futures commission merchant
upon receipt of a Certificate from the Fund specifying: (a) the name of the
futures commission merchant; (b) the specific cash and Securities to be
delivered; (c) the date of such delivery; and (d) the date of the agreement
between the Fund and such futures commission merchant entered pursuant to Rule
17f-6 under the Investment Company Act 1940, as amended. Each delivery of such a
Certificate by the Fund shall constitute (x) a representation and warranty by
the Fund that the Rule 17f-6 agreement has been duly authorized, executed and
delivered by the Fund and the futures commission merchant and complies with Rule
17f-6, and (y) an agreement by the Fund that the Custodian shall not be liable
for the acts or omissions of any such futures commission merchant.
ARTICLE VIII.
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund shall
promptly deliver to the Custodian a Certificate specifying: (a) the Series for
which such short sale was made; (b) the name of the issuer and the title of the
Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
closing out: (a) the Series for which such transaction is being made; (b) the
name of the issuer and the title of the Security; (c) the number of shares or
the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the
<PAGE>
broker; (d) the dates of closing-out and settlement; (e) the purchase price per
unit; (f) the net total amount payable to the Fund upon such closing-out; (g)
the net total amount payable to the broker upon such closing-out; (h) the amount
of cash and the amount and kind of Securities to be withdrawn, if any, from the
Margin Account; (i) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account; and (j) the name of
the broker through whom the Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to the Fund upon such
closing-out, and the return and/or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out, pay out of the
money held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the Certificate.
ARTICLE IX.
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters into a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase Agreement is
entered; (b) the total amount payable to the Fund in connection with such
Reverse Repurchase Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in preceding
paragraph 1 of this Article, the Fund shall promptly deliver a Certificate or,
in the event such Reverse Repurchase Agreement is a Money Market Security, a
Certificate or Oral Instructions to the Custodian specifying: (a) the Reverse
Repurchase Agreement being terminated and the Series for which same was entered;
(b) the total amount payable by the Fund in connection with such termination;
(c) the amount and kind of Securities to be received by the Fund and
specifically allocated to such Series in connection with such termination; (d)
the date of termination; (e) the name of the broker or dealer with or through
whom the Reverse Repurchase Agreement is to be terminated; and (f) the amount of
cash and/or the amount and kind of Securities to be withdrawn from the Senior
Securities Account for such Series. The Custodian shall, upon receipt of the
amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral
<PAGE>
Instructions, make the payment to the broker or dealer, and the withdrawals, if
any, from the Senior Security Account, specified in such Certificate or Oral
Instructions.
ARTICLE X.
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically allocated to a
Series held by the Custodian hereunder, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities, (c) the number of
shares or the principal amount loaned, (d) the date of loan and delivery, (e)
the total amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the Fund, the
Fund shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the Series to which the loaned Securities are specifically allocated; (b)
the name of the issuer and the title of the Securities to be returned, (c) the
number of shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the money held for the account of the Fund, the total amount payable
upon such return of Securities as set forth in the Certificate.
ARTICLE XI.
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or withdrawals
from, a Senior Security Account as specified in a Certificate received by the
Custodian. Such Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the amount and kind of
Securities specifically
<PAGE>
allocated to such Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event that the Fund fails to specify in
a Certificate the Series, the name of the issuer, the title and the number of
shares or the principal amount of any particular Securities to be deposited by
the Custodian into, or withdrawn from, a Senior Securities Account, the
Custodian shall be under no obligation to make any such deposit or withdrawal
and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin Account to the
broker, dealer, futures commission merchant or Clearing Member in whose name, or
for whose benefit, the account was established as specified in the Margin
Account Agreement.
3. Amounts received by the Custodian as payments or distributions with respect
to Securities deposited in any Margin Account shall be dealt with in accordance
with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in and to
any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a statement
with respect to each Margin Account in which money or Securities are held
specifying as of the close of business on the previous business day: (a) the
name of the Margin Account; (b) the amount and kind of Securities held therein;
and (c) the amount of money held therein. The Custodian shall make available
upon request to any broker, dealer, or futures commission merchant specified in
the name of a Margin Account a copy of the statement furnished the Fund with
respect to such Margin Account.
6. Promptly after the close of business on each business day in which cash
and/or Securities are maintained in a Collateral Account for any Series, the
Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
<PAGE>
ARTICLE XII.
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of the Board
of Directors of the Fund, certified by the Secretary or any Assistant Secretary,
either (i) setting forth with respect to the Series specified therein the date
of the declaration of a dividend or distribution, the date of payment thereof,
the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
2. Upon the payment date specified in such resolution, Oral Instructions or
Certificate, as the case may be, the Custodian shall pay out of the money held
for the account of each Series the total amount payable to the Dividend Agent
and any sub-dividend agent or co-dividend agent of the Fund with respect to such
Series.
ARTICLE XIII.
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the Custodian a
Certificate duly specifying:
(a) the Series, the number of Shares sold, trade date, and price; and
(b) the amount of money to be received by the Custodian for the sale of such
Shares and specifically allocated to the separate account in the name of such
Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian shall
credit such money to the separate account in the name of the Series for which
such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
<PAGE>
4. Except as provided hereinafter, whenever the Fund desires the Custodian to
make payment out of the money held by the Custodian hereunder in connection with
a redemption of any Shares, it shall furnish to the Custodian a Certificate
specifying:
(a) the number and Series of Shares redeemed; and
(b) the amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the Series
and number of Shares received by the Transfer Agent for redemption and that such
Shares are in good form for redemption, the Custodian shall make payment to the
Transfer Agent out of the money held in the separate account in the name of the
Series the total amount specified in the Certificate issued pursuant to the
foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any Shares,
whenever any Shares are redeemed pursuant to any check redemption privilege
which may from time to time be offered by the Fund, the Custodian, unless
otherwise instructed by a Certificate, shall, upon receipt of an advice from the
Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the money held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV.
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on behalf of
any Series which results in an overdraft because the money held by the Custodian
in the separate account for such Series shall be insufficient to pay the total
amount payable upon a purchase of Securities specifically allocated to such
Series, as set forth in a Certificate or Oral Instructions, or which results in
an overdraft in the separate account of such Series for some other reason, or if
the Fund is for any other reason indebted to the Custodian with respect to a
Series, including any indebtedness to The Bank of New York under the Fund's Cash
Management and Related Services Agreement, (except a borrowing for investment or
for temporary or emergency purposes using Securities as collateral pursuant to a
separate agreement and subject to the provisions of paragraph 2 of this
Article), such overdraft or indebtedness shall be deemed to be a loan made by
the Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to 1/2% over Custodian's prime
commercial lending rate in effect from time to time, such rate to be adjusted on
the effective date of any change in such prime commercial lending rate but in no
event to be less than 6% per annum. In addition, the Fund hereby agrees that the
Custodian shall have a continuing lien, security interest, and
<PAGE>
security entitlement in and to any property including any investment property or
any financial asset specifically allocated to such Series at any time held by it
for the benefit of such Series or in which the Fund may have an interest which
is then in the Custodian's possession or control or in possession or control of
any third party acting in the Custodian's behalf. The Fund authorizes the
Custodian, in its sole discretion, at any time to charge any such overdraft or
indebtedness together with interest due thereon against any balance of account
standing to such Series' credit on the Custodian's books. In addition, the Fund
hereby covenants that on each Business Day on which either it intends to enter a
Reverse Repurchase Agreement and/or otherwise borrow from a third party, or
which next succeeds a Business Day on which at the close of business the Fund
had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall
prior to 9 a.m., New York City time, advise the Custodian, in writing, of each
such borrowing, shall specify the Series to which the same relates, and shall
not incur any indebtedness not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank (including,
if the borrowing is pursuant to a separate agreement, the Custodian) from which
it borrows money for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for such borrowings, a
notice or undertaking in the form currently employed by any such bank setting
forth the amount which such bank will loan to the Fund against delivery of a
stated amount of collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a) the Series to
which such borrowing relates; (b) the name of the bank, (c) the amount and terms
of the borrowing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other loan agreement,(d)
the time and date, if known, on which the loan is to be entered into, (e) the
date on which the loan becomes due and payable, (f) the total amount payable to
the Fund on the borrowing date, (g) the market value of Securities to be
delivered as collateral for such loan, including the name of the issuer, the
title and the number of shares or the principal amount of any particular
Securities, and (h) a statement specifying whether such loan is for investment
purposes or for temporary or emergency purposes and that such loan is in
conformance with the Investment Company Act of 1940 and the Fund's prospectus.
The Custodian shall deliver on the borrowing date specified in a Certificate the
specified collateral and the executed promissory note, if any, against delivery
by the lending bank of the total amount of the loan payable, provided that the
same conforms to the total amount payable as set forth in the Certificate. The
Custodian may, at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights therein given the
lending bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver such Securities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described in this
paragraph. The Fund shall cause all Securities released from collateral status
to be returned directly to the Custodian, and the Custodian shall receive from
time to time such return of collateral as may be tendered to it. In the event
that the Fund fails to specify in a Certificate the Series, the name of the
issuer, the title and number of shares or the principal amount of any particular
Securities to be delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
<PAGE>
ARTICLE XV.
INSTRUCTIONS
1. With respect to any software provided by the Custodian to a Fund in order for
the Fund to transmit Instructions to the Custodian (the "Software"), the
Custodian grants to such Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Instructions
to, and receiving communications from, the Custodian in connection with its
account(s). The Fund agrees not to sell, reproduce, lease or otherwise provide,
directly or indirectly, the Software or any portion thereof to any third party
without the prior written consent of the Custodian.
2. The Fund shall obtain and maintain at its own cost and expense all equipment
and services, including but not limited to communications services, necessary
for it to utilize the Software and transmit Instructions to the Custodian. The
Custodian shall not be responsible for the reliability, compatibility with the
Software or availability of any such equipment or services or the performance or
nonperformance by any nonparty to this Custody Agreement.
3. The Fund acknowledges that the Software, all data bases made available to the
Fund by utilizing the Software (other than data bases relating solely to the
assets of the Fund and transactions with respect thereto), and any proprietary
data, processes, information and documentation (other than which are or become
part of the public domain or are legally required to be made available to the
public) (collectively, the "Information"), are the exclusive and confidential
property of the Custodian. The Fund shall keep the Information confidential by
using the same care and discretion that the Fund uses with respect to its own
confidential property and trade secrets and shall neither make nor permit any
disclosure without the prior written consent of the Custodian. Upon termination
of this Agreement or the Software license granted hereunder for any reason, the
Fund shall return to the Custodian all copies of the Information which are in
its possession or under its control or which the Fund distributed to third
parties.
4. The Custodian reserves the right to modify the Software from time to time
upon reasonable prior notice and the Fund shall install new releases of the
Software as the Custodian may direct. The Fund agrees not to modify or attempt
to modify the Software without the Custodian's prior written consent. The Fund
acknowledges that any modifications to the Software, whether by the Fund or the
Custodian and whether with or without the Custodian's consent, shall become the
property of the Custodian.
5. The Custodian makes no warranties or representations of any kind with regard
to the Software or the method(s) by which the Fund may transmit Instructions to
the Custodian, express or implied, including but not limited to any implied
warranties of merchantability or fitness for a particular purpose.
6. Where the method for transmitting Instructions by the Fund involves an
automatic
<PAGE>
systems acknowledgment by the Custodian of its receipt of such Instructions,
then in the absence of such acknowledgment the Custodian shall not be liable for
any failure to act pursuant to such Instructions, the Fund may not claim that
such Instructions were received by the Custodian, and the Fund shall deliver a
Certificate by some other means.
7. (a) The Fund agrees that where it delivers to the Custodian Instructions
hereunder, it shall be the Fund's sole responsibility to ensure that only
persons duly authorized by the Fund transmit such Instructions to the Custodian.
The Fund will cause all persons transmitting Instructions to the Custodian to
treat applicable user and authorization codes, passwords and authentication keys
with extreme care, and irrevocably authorizes the Custodian to act in accordance
with and rely upon Instructions received by it pursuant hereto.
(b) The Fund hereby represents, acknowledges and agrees that it is fully
informed of the protections and risks associated with the various methods of
transmitting Instructions to the Custodian and that there may be more secure
methods of transmitting instructions to the Custodian than the method(s)
selected by the Fund. The Fund hereby agrees that the security procedures (if
any) to be followed in connection with the Fund's transmission of Instructions
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
8. The Fund hereby represents, warrants and covenants to the Custodian that this
Agreement has been duly approved by a resolution of its Board of Directors, and
that its transmission of Instructions pursuant hereto shall at all times comply
with the Investment Company Act of 1940, as amended.
9. The Fund shall notify the Custodian of any errors, omissions or interruptions
in, or delay or unavailability of, its ability to send Instructions as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Fund's ability to send Instructions.
ARTICLE XVI.
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as sub-custodian for
each Series' Securities for which the primary market is outside the United
States ("Foreign Securities") and other assets, the foreign banking institutions
and foreign securities depositories and clearing agencies designated on Schedule
I hereto ("Foreign Sub-Custodians"). The Fund may designate any additional
foreign sub-custodian with which
<PAGE>
the Custodian has an agreement for such entity to act as the Custodian's agent,
as its sub-custodian and any such additional foreign sub-custodian shall be
deemed added to Schedule I. Upon receipt of a Certificate from the Fund, the
Custodian shall cease the employment of any one or more Foreign Sub-Custodians
for maintaining custody of the Fund's assets and such Foreign Sub-Custodian
shall be deemed deleted from Schedule I.
2. Each delivery of a Certificate to the Custodian in connection with a
transaction involving the use of a Foreign Sub-Custodian shall constitute a
representation and warranty by the Fund that its Board of Directors, or its
third party foreign custody manager as defined in Rule 17f-5 under the
Investment Company Act of 1940, as amended, if any, has determined that use of
such Foreign Sub-Custodian satisfies the requirements of such Investment Company
Act of 1940 and such Rule 17f-5 thereunder.
3. The Custodian shall identify on its books as belonging to each Series of the
Fund the Foreign Securities of such Series held by each Foreign Sub-Custodian.
At the election of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claims by the Fund or any Series against a
Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense,
liability or claim sustained or incurred by the Fund or any Series if and to the
extent that the Fund or such Series has not been made whole for any such loss,
damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the terms of
the applicable Foreign Sub-Custodian agreement, use reasonable efforts to
arrange for the independent accountants of the Fund to be afforded access to the
books and records of any Foreign Sub-Custodian insofar as such books and records
relate to the performance of such Foreign Sub-Custodian under its agreement with
the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and other assets of each Series
held by Foreign Sub-Custodians, including but not limited to an identification
of entities having possession of each Series' Foreign Securities and other
assets, and advices or notifications of any transfers of Foreign Securities to
or from each custodial account maintained by a Foreign Sub-Custodian for the
Custodian on behalf of the Series.
6. The Custodian shall transmit promptly to the Fund all notices, reports or
other written information received pertaining to the Fund's Foreign Securities,
including without limitation, notices of corporate action, proxies and proxy
solicitation materials.
7. Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for securities received for the account of any Series and delivery
of securities maintained for the account of such Series may be effected in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of securities to the
purchaser thereof or to a dealer therefor
<PAGE>
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
8. Notwithstanding any other provision in this Agreement to the contrary, with
respect to any losses or damages arising out of or relating to any actions or
omissions of any Foreign Sub-Custodian the sole responsibility and liability of
the Custodian shall be to take appropriate action at the Fund's expense to
recover such loss or damage from the Foreign Sub-Custodian. It is expressly
understood and agreed that the Custodian's sole responsibility and liability
shall be limited to amounts so recovered from the Foreign Sub-Custodian.
ARTICLE XVII.
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall promptly
deliver to the Custodian a Certificate or Oral Instructions specifying with
respect to such FX Transaction: (a) the Series to which such FX Transaction is
specifically allocated; (b) the type and amount of Currency to be purchased by
the Fund; (c) the type and amount of Currency to be sold by the Fund; (d) the
date on which the Currency to be purchased is to be delivered; (e) the date on
which the Currency to be sold is to be delivered; and (f) the name of the person
from whom or through whom such currencies are to be purchased and sold. Unless
otherwise instructed by a Certificate or Oral Instructions, the Custodian shall
deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to
be sold on the date on which such delivery is to be made, as set forth in the
Certificate, and shall receive, or instruct a Foreign Sub-Custodian to receive,
the Currency to be purchased on the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as the
Currency to be purchased, as specified in the Certificate or Oral Instructions,
the Custodian or a Foreign Sub-Custodian may arrange for such deliveries and
receipts to be made in accordance with the customs prevailing from time to time
among brokers or dealers in Currencies, and such receipt and delivery may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with such receipts and deliveries, which
responsibility and liability shall continue until the Currency to be received by
the Fund has been received in full.
3. Any FX Transaction effected by the Custodian in connection with this
Agreement may be entered with the Custodian, any office, branch or subsidiary of
The Bank of New York Company, Inc., or any Foreign Sub-Custodian acting as
principal or otherwise through customary banking channels. The Fund may issue a
standing Certificate with respect to FX Transaction but the Custodian may
establish rules or limitations concerning any foreign exchange facility made
available to the Fund. The Fund shall bear all risks of investing in Securities
or holding Currency. Without limiting the foregoing, the Fund shall bear the
risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign
depositories, exchange controls, asset freezes or other laws, rules, regulations
or
<PAGE>
orders shall prohibit or impose burdens or costs on the transfer to, by or for
the account of the Fund of Securities or any cash held outside the Fund's
jurisdiction or denominated in Currency other than its home jurisdiction or the
conversion of cash from one Currency into another currency. The Custodian shall
not be obligated to substitute another Currency for a Currency (including a
Currency that is a component of a Composite Currency Unit) whose
transferability, convertibility or availability has been affected by such law,
regulation, rule or procedure. Neither the Custodian nor any Foreign
Sub-Custodian shall be liable to the Fund for any loss resulting from any of the
foregoing events.
ARTICLE XVIII.
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI, neither the
Custodian nor its nominee shall be liable for any loss or damage, including
counsel fees, resulting from its action or omission to act or otherwise, either
hereunder or under any Margin Account Agreement, except for any such loss or
damage arising out of its own negligence or willful misconduct. In no event
shall the Custodian be liable to the Fund or any third party for special,
indirect or consequential damages or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action. The Custodian
may, with respect to questions of law arising hereunder or under any Margin
Account Agreement, apply for and obtain the advice and opinion of counsel to the
Fund, or of its own counsel, at the expense of the Fund, and shall be fully
protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian shall be
under no obligation to inquire into, and shall not be liable for:
(a) the validity of the issue of any Securities purchased, sold, or written by
or for the Fund, the legality of the purchase, sale or writing thereof, or the
propriety of the amount paid or received therefor;
(b) the legality of the sale or redemption of any Shares, or the propriety of
the amount to be received or paid therefor;
(c) the legality of the declaration or payment of any dividend by the Fund;
(d) the legality of any borrowing by the Fund using Securities as collateral;
(e) the legality of any loan of portfolio Securities, nor shall the Custodian be
under any duty or obligation to see to it that any cash collateral delivered to
it by a broker,
<PAGE>
dealer, or financial institution or held by it at any time as a result of such
loan of portfolio Securities of the Fund is adequate collateral for the Fund
against any loss it might sustain as a result of such loan. The Custodian
specifically, but not by way of limitation, shall not be under any duty or
obligation periodically to check or notify the Fund that the amount of such cash
collateral held by it for the Fund is sufficient collateral for the Fund, but
such duty or obligation shall be the sole responsibility of the Fund. In
addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio Securities of the
Fund are lent pursuant to Article X of this Agreement makes payment to it of any
dividends or interest which are payable to or for the account of the Fund during
the period of such loan or at the termination of such loan, provided, however,
that the Custodian shall promptly notify the Fund in the event that such
dividends or interest are not paid and received when due; or
(f) the sufficiency or value of any amounts of money and/or Securities held in
any Margin Account, Senior Security Account or Collateral Account in connection
with transactions by the Fund. In addition, the Custodian shall be under no duty
or obligation to see that any broker, dealer, futures commission merchant or
Clearing Member makes payment to the Fund of any variation margin payment or
similar payment which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see that any payment
received by the Custodian from any broker, dealer, futures commission merchant
or Clearing Member is the amount the Fund is entitled to receive, or to notify
the Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the Custodian of,
any money, whether or not represented by any check, draft, or other instrument
for the payment of money, received by it on behalf of the Fund until the
Custodian actually receives and collects such money directly or by the final
crediting of the account representing the Fund's interest at the Book-Entry
System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable for
ascertaining or acting upon any calls, conversions, exchange offers, tenders,
interest rate changes or similar matters relating to Securities held in the
Depository, unless the Custodian shall have actually received timely notice from
the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action, suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take action to
effect
<PAGE>
collection of any amount due to the Fund from the Transfer Agent of the Fund nor
to take any action to effect payment or distribution by the Transfer Agent of
the Fund of any amount paid by the Custodian to the Transfer Agent of the Fund
in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take action to
effect collection of any amount if the Securities upon which such amount is
payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign Sub-Custodians
pursuant to Article XVI appoint one or more banking institutions as Depository
or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking institutions located in
foreign countries, of Securities and money at any time owned by the Fund, upon
such terms and conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to ascertain
whether any Securities at any time delivered to, or held by it or by any Foreign
Sub-Custodian, for the account of the Fund and specifically allocated to a
Series are such as properly may be held by the Fund or such Series under the
provisions of its then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the Custodian, are such
transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to pay to the
Custodian all out-of-pocket expenses and such compensation as may be agreed upon
from time to time between the Custodian and the Fund. The Custodian may charge
such compensation and any expenses with respect to a Series incurred by the
Custodian in the performance of its duties pursuant to such agreement against
any money specifically allocated to such Series. Unless and until the Fund
instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series, net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate, notice or
other instrument in writing received by the Custodian and reasonably believed by
the
<PAGE>
Custodian to be a Certificate. The Custodian shall be entitled to rely upon any
Oral Instructions actually received by the Custodian hereinabove provided for.
The Fund agrees to forward to the Custodian a Certificate or facsimile thereof
confirming such Oral Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by hand delivery,
telecopier or other similar device, or otherwise, by the close of business of
the same day that such Oral Instructions are given to the Custodian. The Fund
agrees that the fact that such confirming instructions are not received, or that
contrary instructions are received, by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument, instruction or
notice received by the Custodian and reasonably believed by the Custodian to be
given in accordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing, the Custodian shall
be under no duty to inquire into, and shall not be liable for, the accuracy of
any statements or representations contained in any such instrument or other
notice including, without limitation, any specification of any amount to be paid
to a broker, dealer, futures commission merchant or Clearing Member.
12. The books and records pertaining to the Fund which are in the possession of
the Custodian shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the Investment Company Act of 1940, as
amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representatives, shall have access to such books
and records during the Custodian's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
the Custodian to the Fund or the Fund's authorized representative, and the Fund
shall reimburse the Custodian its expenses of providing such copies. Upon
reasonable request of the Fund, the Custodian shall provide in hard copy or on
micro-film, whichever the Custodian elects, any records included in any such
delivery which are maintained by the Custodian on a computer disc, or are
similarly maintained, and the Fund shall reimburse the Custodian for its
expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by the
Custodian on the system of internal accounting control of the Book-Entry System,
the Depository or O.C.C., and with such reports on its own systems of internal
accounting control as the Fund may reasonably request from time to time.
14. The Fund agrees to indemnify the Custodian against and save the Custodian
harmless from all liability, claims, losses and demands whatsoever, including
attorney's fees, howsoever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or non-payment of checks
pursuant to paragraph 6 of
<PAGE>
Article XIII as part of any check redemption privilege program of the Fund,
except for any such liability, claim, loss and demand arising out of the
Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agreement, including, without
limitation, those contained in Article XVI and XVII the Custodian may deliver
and receive Securities, and receipts with respect to such Securities, and
arrange for payments to be made and received by the Custodian in accordance with
the customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been received by the
Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XIX.
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to the
other party a notice in writing specifying the date of such termination, which
shall be not less than sixty (60) days after the date of giving of such notice.
In the event such notice is given by the Fund, it shall be accompanied by a copy
of a resolution of the Board of Directors of the Fund, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by the Custodian, the Fund
shall, on or before the termination date, deliver to the Custodian a copy of a
resolution of the Board of Directors of the Fund, certified by the Secretary or
any Assistant Secretary, designating a successor custodian or custodians. In the
absence of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and money then owned by the
Fund and held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the Custodian in
accordance with the preceding paragraph, the Fund shall upon the date specified
in the notice of termination of this Agreement and upon the delivery by the
Custodian of all Securities (other than Securities held in the Book-Entry System
which cannot be
<PAGE>
delivered to the Fund) and money then owned by the Fund be deemed to be its own
custodian and the Custodian shall thereby be relieved of all duties and
responsibilities pursuant to this Agreement, other than the duty with respect to
Securities held in the Book Entry System which cannot be delivered to the Fund
to hold such Securities hereunder in accordance with this Agreement.
ARTICLE XX.
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the present
Authorized Persons of the Fund under its seal, setting forth the names and the
signatures of the present Authorized Persons of the Fund. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event that any
such present Authorized Person ceases to be an Authorized Person of the Fund, or
in the event that other or additional Authorized Persons are elected or
appointed. Until such new Certificate shall be received, the Custodian shall be
fully protected in acting under the provisions of this Agreement or Oral
Instructions upon the signatures of the Authorized Persons as set forth in the
last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Custodian, shall be sufficiently given if addressed
to the Custodian and mailed or delivered to it at its offices at 90 Washington
Street, New York, New York 10286, or at such other place as the Custodian may
from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Fund shall be sufficiently given if addressed to
the Fund and mailed or delivered to it at its office at the address for the Fund
first above written, or at such other place as the Fund may from time to time
designate in writing.
4. This Agreement may not be amended or modified in any manner except by a
written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties hereto,
and their respective successors and assigns; provided, however, that this
Agreement shall not be assignable by the Fund without the written consent of the
Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Directors.
6. This Agreement shall be construed in accordance with the laws of the State of
New York without giving effect to conflict of laws principles thereof. Each
party hereby consents to the jurisdiction of a state or federal court situated
in New York City, New York in connection with any dispute arising hereunder and
hereby waives its right to trial by jury.
<PAGE>
7. This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereunto affixed, as of the day and year first above written.
NATIONAL INVESTORS CASH MANAGEMENT FUND, INC.
By: /s/ Richard W. Ingram
Attest:
/s/ Karen Jacoppo-Wood
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
Name: Stephen E. Grunston
Title: Vice President
Attest:
<PAGE>
APPENDIX A
I, , and I, , of NATIONAL
INVESTORS CASH MANAGEMENT FUND, INC., a Maryland corporation (the "Fund"), do
hereby certify that:
The following persons have been duly authorized in conformity with the Fund's
Declaration of Trust and By-Laws to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund, and the signatures set forth opposite
their respective names are their true and correct signatures:
Name Position
Signature
<PAGE>
APPENDIX B
SERIES
KENNEDY CABOT CASH MANAGEMENT PORTFOLIO
<PAGE>
APPENDIX C
I, Vincent Blazewicz, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, Richard W. Ingram, hereby certifies that he or she is the duly
elected and acting President of NATIONAL INVESTORS CASH MANAGEMENT FUND, INC., a
Maryland corporation (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on February 26, 1998, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 1998,
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of the Series
to which the same are specifically allocated, and to utilize the Book-Entry
System to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of NATIONAL
INVESTORS CASH MANAGEMENT FUND, INC., as of the 26th day of February, 1998.
/s/ Richard W. Ingram
---------------------
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, Richard W. Ingram, hereby certifies that he or she is the duly
elected and acting President of NATIONAL INVESTORS CASH MANAGEMENT FUND, INC., a
Maryland corporation (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on February 26, 1998, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 1998,
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of NATIONAL
INVESTORS CASH MANAGEMENT FUND, INC., as of the 26th day of February, 1998.
/s/ Richard W. Ingram
---------------------
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, Richard W. Ingram, hereby certifies that he or she is the duly
elected and acting President of NATIONAL INVESTORS CASH MANAGEMENT FUND, INC., a
Maryland corporation (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on February 26, 1998, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 1998,
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the Participants Trust Company
as Depository, as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Participants Trust Company to the extent possible
in connection with its performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of NATIONAL
INVESTORS CASH MANAGEMENT FUND, INC., as of the 26th day of February, 1998.
/s/ Richard W. Ingram
---------------------
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, Richard W. Ingram, hereby certifies that he or she is the duly
elected and acting President of NATIONAL INVESTORS CASH MANAGEMENT FUND, INC., a
Maryland corporation (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on February 26, 1998, at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of , 1998,
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary, to accept, utilize and act with respect to
Clearing Member confirmations for Options and transaction in Options, regardless
of the Series to which the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of NATIONAL
INVESTORS CASH MANAGEMENT FUND, INC., as of the 26th day of February, 1998.
/s/ Richard W. Ingram
---------------------
[SEAL]
<PAGE>
EXHIBIT D
The undersigned, Richard W. Ingram, hereby certifies that he or she is the duly
elected and acting President of NATIONAL INVESTORS CASH MANAGEMENT FUND, INC., a
Maryland corporation (the "Fund"), further certifies that the following
resolutions were adopted by the Board of Directors of the Fund at a meeting duly
held on February 26, 1998, at which a quorum was at all times present and that
such resolutions have not been modified or rescinded and are in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the Custody
Agreement between The Bank of New York and the Fund dated as of , 1998
(the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to act in accordance with, and to rely on Instructions (as defined
in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant use of such
access codes only to Authorized Persons of the Fund as defined in the Custody
Agreement, shall establish internal safekeeping procedures to safeguard and
protect the confidentiality and availability of user and access codes, passwords
and authentication keys, and shall use Instructions only in a manner that does
not contravene the Investment Company Act of 1940, as amended, or the rules and
regulations thereunder.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of NATIONAL
INVESTORS CASH MANAGEMENT FUND, INC., as of the 26th day of February, 1998.
/s/ Richard W. Ingram
---------------------
[SEAL]
<PAGE>
APPENDIX B
SERIES
KENNEDY CABOT MONEY MARKET PORTFOLIO
KENNEDY CABOT U.S. GOVERNMENT PORTFOLIO
KENNEDY CABOT MUNICIPAL PORTFOLIO
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors and Reports to Shareholders" and to the
use of our report dated May 28, 1999, which is incorporated by reference, in
this Registration Statement (Form N-1A No.333-14527) of
National Investors Cash Management Fund, Inc.
ERNST & YOUNG LLP
New York, New York
June 25, 1999
